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Jehangir S. Pocha
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In the end, India will still be trapped in debt

Massive administrative reforms would be needed to cut corruption and waste.

here is a hidden disease eating into India's Budget and it is quite incurable. It is called a "debt trap" and its cause is simple — greed. Media chatter over the upcoming Budget has told us India's problem is that it spends much more than it earns. That is all the term "fiscal deficit" means. What is less discussed is how the government fills the gap between its earnings and spending through relentless borrowing. The Centre's total debt is now a staggering Rs 4,700,000 crore. Include the states' debt and India's total government debt is Rs 6,500,000 crore, approximately 65% of its GDP.

"Oh, that's okay, nothing to worry about," a bureaucrat said breezily. "Look at the United States. Its debt is 75% of its GDP."

But the figure is so huge that New Delhi now has to borrow money just to pay the interest due on its old loans. This is the deadly disease called the "debt trap" and it was the UPA's parting gift to the nation. In its last year in power, the UPA took new loans of Rs 457,000 crore, more than the Rs 427,000 crore interest it paid on old loans. Though these figures were public and showed India had technically fallen into a debt trap, they were ignored.

Blithe comparisons to the US miss or wilfully ignore the crucial fact that the US borrows money at 1-3% interest rate, while India borrows at 7-9%. So though the US' debt is higher than India's, its interest payments are lower. Only 6% of the US federal budget goes to interest payments, while for India it is 25%. The US also borrows in its own currency, a luxury no other nation enjoys.

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India is neck-deep in debt because successive governments have got the nation hooked onto populist schemes replete with corruption.

India's situation is worsened by the reasons the government has borrowed so much. National debt is understandable if the money is used to build infrastructure or fund emergencies. For example, America's debt is at all-time highs because it has fought just two wars, printed $2.5 trillion to stymie the sub-prime crisis and expanded its intelligence and military capabilities in response to 9/11. America has also invested heavily in free schooling, social security, and now, universal healthcare.

India is neck-deep in debt simply because successive governments have got the nation hooked onto populist schemes replete with corruption. Food, fuel and fertilizer subsidies, wonky welfare programmes and spiralling defence spending swallow 30% of India's budget. With interest eating up 25%, only about 40% of India's budget is available for everything else, including health and education. Even in this there is widespread waste and corruption.

Normally, in this column I proffer solutions to the problems I highlight. But in this case there are none at hand.

To break out of the debt trap, the government would have to raise revenues and cut spending. Indians need to realise that while the state must help the poor, it cannot mollycoddle the middle-class. Voters would have to accept that cheap fuel, food, electricity, water and cooking gas are not birthrights.

Those backing huge defence spending would need to see one cannot build a first-class military with a third world economy. Massive administrative reforms would be needed to cut corruption and waste.

Lastly, citizens would need to embrace the fact that apart from voting it is also their basic duty to pay taxes honestly.

In our hearts we know these are pipe dreams. Politicians' short-term electoral goals have combined with our own myopic hunger for free lunches to create a deadly cocktail of insatiable greed that demands instant gratification. We want it all and we want it now, even if we cannot afford it.

While our parents laboured and saved, even if it meant depriving themselves just so we could have a better life, we are repaying them by living it up and selfishly passing the bill on to our kids.

Changing this will take years of disciplined effort, political maturity and social transformation. And there is no sign of this happening. For all the personal desire Prime Minister Narendra Modi and Finance Minister Arun Jaitley may have to do the right thing, the political and social compulsions for continuing handouts and huge defence spending are too powerful.

So on 10 July, when Jaitley bravely stands up in Parliament to present the Budget we should know he won't be able to do much. No man can. The basic structure of India's economic choices has fallen into a pattern that is impossible to change. This is the reason India has not had a landmark budget since 1996. Jaitley can nip, tuck, tweak, whittle and cut. And he can do some good.

But in the end India will still be trapped in debt. And we will only have ourselves to blame.

 
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