Indian government - the compulsive borrower

(D. H. Pai Panandiker is the President of RPG Foundation. The views expressed in this column are his own)

By D. H. Pai Panandiker

A compulsive borrower. That is what the government has been. By March 2010 its debt liabilities would have climbed to 35 trillion rupees, a 12 per cent jump in a single year. Government borrows because it cannot tax any more but needs the money to spend any way.

Companies are also huge borrowers and without debt business would not be profitable. They borrow to fund productive capital assets which earn income from which loans are repaid.

That is not so with Government. It borrows not only for investment but also to fund current expenditure. The total assets of Government consequently are less than a half of its total liabilities.

When Government borrows to fund current expenditure there is corresponding reduction in national savings. In 2009-10 the diversion of potential savings to consumption would be 4 per cent of GDP. That will reduce private investment or generate inflation.

The accumulated debt of Government has now crossed 68 per cent of the GDP.

There are many countries whose public debt has even exceeded even 100 per cent. Japan is the worst case. Its public debt exceeds 170 per cent of GDP.