Most of us plan our expenses in a way that we not only have enough saved for our needs but also leave behind a little something for our children. In contrast, our government is burdening the next generation not only with a climate crisis, but also a ballooning financial debt burden. At the same time, the rich 1% continue to accumulate upwards of 70% of the wealth created every year in India.

As per the budget document tabled by the Government in the parliament last month, as on 31 March 2021, the Central Government’s revised estimate of the total debt is Rs. 1,21,21,959.24 crores. In the financial year 2020-21, the total revenue receipts (revised estimates) of the Central Government is Rs. 15,55,153.17. Which means that the ratio of total cumulative debt to this year’s revised estimate of revenue receipts is a staggering 7.8. This implies that our Government would need to freeze all expenses for about 8 years in order to pay off this accumulated debt! In order to make the debt seem reasonable to the common man, all governments use the ratio of debt to GDP. This could be misleading for the people because GDP is a measure of the value added by all the residents of the country, while this debt is only on the government’s balance sheet (the rest of the persons have their own debt/liabilities to worry about!). As the author of this article argues, the situation could get difficult in the event of another economic shock. Given the current geopolitical situation (border standoff with China, regular ceasefire violations along the LoC with politically unstable Pakistan), rising crude prices and the stress of climate crisis already being experienced in many part of the country (in the form of annual floods and/or droughts), the next shock does not seem as implausible to me as the experts quoted in the article believe.

In this context, I was not surprised to read a recent article on the refusal of the markets to buy Government of India’s bonds. Of the Rs. 1,43,000 crores bonds auctioned by the Reserve Bank of India (RBI) between 5 February and 4 March, only Rs. 58,366 (40.8%) was bought by the market and the rest had to be either devolved on primary dealers (42.9%) or the sales had been partially/fully cancelled. This seems to be unprecedented. Clearly, the market expects higher risk on these borrowings, and they want higher returns. Both the government and RBI would like to keep the borrowing cost low, given the already ballooning debt burden. In addition, a higher yield on these bonds would imply a higher borrowing cost for the State Govts, who are currently presenting their respective budgets and thus indicating their borrowing needs to the market. Finally, as this article indicates, the Indian debt market could also have a destabilising effect on the equity market.

RBI has said that the bond buyers should be sympathetic to government efforts to bolster the economy through keeping a lid on borrowing costs. Given that the government wants to borrow another Rs. 12,05,500 crores in FY2021-22 via sale of bonds, RBI and the Finance Minister have to do more to keep the cost of borrowing in the 6-6.2% than just appeal to the fast disappearing sympathetic buyers! One of the ways to increase its own revenue receipts is by bringing back the wealth tax on the super-rich. As per this list, the richest 827 Indians have a staggering combined wealth of Rs. 60,37,100 crores in 2020. A one time, 10% wealth tax on them could provide the government with enough revenue to cut the planned borrowing for FY22 by half!

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