Overloading of public debt: Don't kick it

Copyright © HT Digital Streams Limit all rights reserved. Can India escape the debt fall that rich economies are staring at? The Bank for International Settlements (BIS), a financial institution owned by central banks, has encouraged governments to combat the ‘relentless’ rise in public debt. (Reuters) Summary governments around the world consider public spending on debt as an easy way to overcome economic slowdown. But the costs it imposes – especially on unborn taxpayers – should not be a way out. Does the West need a sharper memory of it than we do? As countries are staring at the prospect of a slower economic growth in the post-Trumpic world, the Keynesian response of fiscal support-which is vined by additional public debt-a disappearing option, given the reality of repayments that reach unsustainable levels. Ironically, it is not the usual suspects who are guilty of living far beyond their resources by taking out the easy way out to borrow more. More than emerging market economies, it is advanced countries-the US, the United Kingdom, Germany and France, to name but a few-struggling with rising debt and the consequences, higher interest payments. Unfortunately, debt-funded spending is one of the easiest options for fiscal authorities to tackle the slowdown of growth. But it comes at a cost. Both immediately and in the future. The initial impact is in the form of a higher cost carried by the government for the money it lends. The long-distance effect is the repayment burden that puts it on successive generations, which reset the inter-generation equity. The Bank for International Settlements (BIS), a financial institution owned by central banks, has long been calling on governments to combat the ‘relentless’ rise in public debt, as higher interest rates make fiscal roads for some countries ‘unsustainable’. According to the BIS, a phase of low rates after the 2007-09 financial crisis increased many administrations in complacency over hard choices. It should reduce expenses or increase taxes, both of which are anathema in election democracies. Agustin Carstens, Governor of the Bank of Mexico and a former general manager of the BIS, issued a tremendous warning earlier this year: “Fiscal consolidation in many economies must start now. To go through is not enough.” Unfortunately, his words seem to have fallen on deaf ears, through rising budget deficits, public debt levels and bond yields worldwide. As public expenses are raised in response to the actual threat of a slowdown, investors who are concerned about blowing up debt have begun to leave the bond markets or claim higher returns. This problem impedes rich and poor economies. The only silver lining is that advanced countries for once cannot lesson the rest of us. Their own numbers are in no better form. In fact, with a growing part of outdated people who are not at work, their problems with greater debt and the transfer of this burden to unborn citizens are even more sharp. After all, the debt of today must be refunded by the taxpayers of tomorrow. If every successive generation is smaller, as in most rich countries, it provides an unfortunate scenario. Fortunately, we were better placed in India. And fortunately, successive governments have come alive for the need to watch public debt. Of course, the center has another way to go before it reached its debt goal of about 50% of GDP by the end of 2030-31, which was announced in the budget speech of this year, a decrease in the earlier goal of 40% by 2025-26. The fiscal stimulus necessitated by the Covid Crunch got in the way. But the good news is that progress has been made. The latest report by the controller and auditor general of July 2025 shows that the center’s debt in 2022-23 dropped from 61.4% of GDP. Will the ongoing global slowdown push us back? If the past is any indication, the government is committed to having fiscal consolidation. This, together with favorable demographics, means that India can fear less than advanced countries. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #Debt #Fiscale Policy #Monetary Policy Read Next Story