Government Debt: Destroyer of Countries

April 28, 2014 | Posted by bobbysrinivasan << back to blog

14/4/2014

Some countries have become so habituated to debt that they have never heard of the word surplus. In the budget of 2013-14, our finance minister declared that he will borrow 29 Rs out of 100 Rs to be spent. This is staggering. The revenue collection in the form of taxes and duties have fallen short of the government needs. Needless to say, any new government will find the task of reducing the deficit quite a challenge. Unless the Indian economy recovers from its 5 percent economic growth rate the amount of deficit cannot be reduced. The new government may require draconian measures to reduce the expenditure and increase revenue by introducing new taxes. The only comforting factor is that we are not alone overspending and the latest data from the US confirms this.

The US government debt has reached 17.5 trillion dollars (No small change). There are 115 million tax + payers and so the percapita debt of the tax payers stands at $152000. The government is drowning in debt and the narrative is always the same.

Government borrows too much
Government prints money in a desperate attempt to service debt
Government will ultimately print too much money, destroying its currency and the savings of all its citizens

As far as India is concerned, the new government should put as its top priority to reduce the budget deficit. If this rate of deficit continues, our country will become vulnerable to external pressure to devalue our currency massively. Our government’s subsidy bill is beyond repair. As of last budget nearly 11 percent of expenditure is for subsidies. Politically it may be suicidal to reduce the subsidy but the economic reality calls for it immediately. At the moment our government is downplaying a potential crisis. As and when it arrives, we will end up with a serious problem to reckon with.

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