In the last five to six years, media, social media, and so-called economists have been full of clamour about the spiraling debt burden in the domestic economy due to the unfretted rise of family and personal debt. They split hairs over the causes behind it, ranging from the cascading negative effects of COVID to the fast-rising consumerism in Indian society. However, consciously or unconsciously, they have missed four other pivotal issues, namely poor job generation and the middle-income trap, high inflationary pressure particularly in the big cities constituting 35% of our national economy, fast-rising import costs due to the steadily falling value of the rupee over the last five years, thus adding to domestic inflationary pressure as well as reducing exporters’ profit margins, and lastly, the national debt exceeding the tolerance band.
It is pertinent to first take a bird’s-eye view of both the current figures of personal and national debt for understanding the gravity of the situation, its causes, and its effects. As per RBI data, the volume of personal debt remarkably clocked 42% of GDP in the last year without any movement of the debt compass. The plausible reason is the RBI’s fear of opening the Pandora’s box of the actual debt-to-GDP ratio because of the deliberate non-consideration of parallel unorganized rural debt, which is more than 35%, thus taking the gross debt ratio to at least 77% of GDP.
In the same fashion, the officially stated national debt, comprising the cumulative current debt of state and central governments, stands at ₹200 trillion, with a revised estimate of ₹219 trillion (83% of GDP). However, unofficially it may be much higher, with concealed debt taken from the IMF, according to many noted economists. Their view is based on the cogent evidence of annual interest payments over the last five years touching the alarming level of 42% of the gross earnings of state and central governments, along with the scale of the spiraling extraction of astronomical dividends from the RBI and PSUs by the central government to feed the mammoth unofficial budget deficit.
Actually, for the first time in national history, not only economists but even the IMF appears to be in great confusion about the reliability of government data. For that reason, many noted domestic economists have recently become unanimous on one point: that government data, particularly on uncomfortable issues such as gross national debt, gross national unemployment rate, gross budget deficit, gross national earnings, and import and export figures, should be viewed with a possible variation of up to 60%.
Now, the most interesting and unique occurrence in the domestic economy is the circulation of the entire national economic activity riding upon the debt cycle, which is unprecedented and peerless in the history of the world economy. The natural question is: what does this mean? The simplest answer is that the undertaking of almost every daily financial activity by any individual, institution, or government department largely consists of debt originating from someone else.
As a tax consultant, I first noticed this issue in the previous financial year due to my curiosity about the actual sources of fee generation from my clients. Around 60–70% of my fees are paid from my clients’ debt accounts, irrespective of whether they are corporates, partnerships, societies, or individuals, either by their own admission or as reflected in their bank statements. The same fact is also seconded by many of my fellow consultant colleagues.
The next most sacrosanct evidence is the recent RBI step of imposing new CIBIL guidelines on domestic banks to rein in the spate of bad debts in both the banking and NBFC sectors. This step only reinforces the undisputed fact that the RBI is engaged in a tough battle to break this cycle of debt economy, where most transactions and services are performed while riding upon the unstoppable conveyor belt of debt.
Theoretically, India is now a stateless vacuum nation because no individual, institution, or government is making any value addition to national economic activity by generating debt-free revenue or earnings, except for a minuscule portion of export revenue. The entire revenues of the nation and states, along with salaries, wages, fees, tolls, prices, and taxes paid, represent the circulation of debt from one entity to another.
In such a state, the concept of an independent nation and a functional constitutional setup virtually reduces to non est, and the hard realities appear to endorse the same.
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