I'm not an economist, Dear Reader. Nor am I a statistician. I do not understand the fancy words relating to economy and bugdet. Being from a middle class family, I understand one basic undocumented rule though and as per the rule - "you should never spend more than what you earn". And I got to know that this rule happens to be violated every year since the birth of independent India. Every year the expenditure by the government turns out to be more than all the earnings put together. And each passing year the gap between the earnings and spendings becomes wider. So the question is - who is supposed to pay this ever increasing amount of debts and associated interests? The government. Right? But then how can the government make this extra money? Since whatever they are making, it can't even match the total spedings, how can one imagine goverment earnings to outnumber the total spendings?
You look scared, Dear Reader. Don't you? You are right in guessing whose head this burden lands on to. It is you who will have to pay out this burden. And if you happen to complete your life without having to pay out, don't be glad - your descendants will have to shell out their earlings to meet the demand.
OK. Let's do some interseting stuff before you loose interest. Let's do some quick mathematical calculations to put things in perspective.
Total external debt on indian goverment as of September 2009 = USD 242.8 billion
Total population of India as of 1st January 2010 = 1.15 billion
Let's for the sake of simplicty, ignore interests on the debt for now. And let's also ignore the increase in the external debt from sept 2009 to december 2009.
If uniformly distributed across the population, then the total external debt on an indian = USD 242.8 / 1.15 = USD 211. Considering current rate of exchange (46 Rs/USD), this amounts to 9706 Rs. And remember that the gap beween the earnings and spendings is becomming bigger with each passing year. And this increase in difference is so big that it beats the increament in indian population to shoulder the total debt each year. And thus in effect, the debt/indian is ever increasing. So to summarise the calculations, let me conlude by saying
Debt on you = N * (9706 + X)
Where N is the number of dependents you have
X is an ever increasing number with respect to time. X ~ 0 for 1st Jan 2010.
May be it is for you. May be it is small enough for you to even bother about. But it certainly is not at all manageable for the 80% of working indian population, the population which struggles hard to make both ends meet. This fraction of the population, even if they want to, can not make any contribution in shouldering the burden. So it again came down to people who are earning enough to be able to contribute - it again came down to you.
I see you doing some mental calculations (probably to figure the lump sum amount you might have to pay out). Does the amount still seem manageable, Dear Reader?
Good write, I understand your concerns. Life is not getting any easier for the middle class(and lower) men, though I have not paid much attention to your mathematical analysis.
ReplyDeleteSince independence, the gimmicks of the Indian economy have made the rich richer, and the poor poorer.If you cannot control inflation, all your plans to uproot poverty will go in vain, because the "debt",as you mentioned, is always increasing.
good thought.
cheers!
Yes the debt is increasing and it is worrisome. It is also true that we have sufficient black money to pay off country's debt. Now the point is how to pull that money in the economy. Also the point is to build a more transparent system than what exists today. Education, internet to all and Population control should be the government's priority.
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ReplyDeleteWell written. At the same time, I am slightly disappointed by the lack of research you have put in, before writing it. Have you compared the data with other countries? I guess not. Had you learnt the figures for the US of A, you would have had a heart attack. Total external debt on USA is -
ReplyDeletesay it with me,
13.6 Trillion dollars (not billions, 1000 billions make a trillion)
Had an average (meaning dumb - just in jest) American read your post and tried to put numbers for her country, she would have long died of shock.
References: http://seekingalpha.com/article/144442-u-s-tops-list-of-countries-with-the-largest-external-debt
Who is the creditor: http://topforeignstocks.com/2009/05/23/top-ten-creditors-to-the-usa/ (China biggest creditor to USA, actually too many countries to list here)
It is desirable to further increase the debt to 55% of GDP from its current level of just 22%.
(http://www.icrier.org/thinkink/7jan09.html)
Most countries have debt to GDP ratio as 1. (debt ~= GDP)
Definitely, I have not analyzed the data completely or refined my understanding of debt. I can comment more after I have a little understanding of economic terms. Open to discussion..
Great analysis Vishal. I enjoyed the comment thoroughly though i cound't agree on few points.
ReplyDeleteThe blogpost was an attempt to make the reader be aware about the state of affairs and to counter the political and public apathy on the issue. It was meant to kindle the series of thoughts in readers' mind. That is the reason i didnt dwell into too much of details.
I didnt like the idea of India's "relative betterness" in terms of amount of debts though. If you are suggesting that we should feel good that we have a lot lesser debt then may be we should feel better as a country on whole lot of issues - because we are doing fairly better than most of the countries.
It is a cause of concern, no two thoughts about it. And I appreciate your concern regarding it. You have spread the message.
ReplyDeleteI was only trying to bring forward the point that you have over simplified a very complicated topic of public finances. Many economists do not see eye to eye when it comes to issues regarding management of public debt. Just wanted to bring that out.
Yes, India did better than other in managing its finances till about 2007 and then it went downhill. We should definitely rejoice when India does relatively better than others on such issues of public importance, isn't that desirable? I am a very optimistic Indian and feel good when the country is relatively better-off than others. I think you should also feel the same.