Page 31 - Banking Finance August 2023

ARTICLE

If we observe above data, we will find that there are many
countries who have high chances of default with a higher
level of loans. For example Portugal, Italy, Venezuela and
Greece faced a default situation in recent past. They all have
their Debt levels above 64% of GDP.

However many developed countries like USA, UK, Japan,
France, Spain and Canada have higher Debt to GDP ratio
and they have already surpassed standard base level of 64%
and still considered as strong economies.

China's case is unique as it does not show its overall liabilities
properly and some reports put its liabilities at over 300%
and still it is considered as strong economy. Hence a few
economist see the scope for India to increase its borrowing
above 64% standard base line based upon above data.
inflation-sensitive country and after Covid, the
government has to ensure that prices of the good and
Considering above what shall be
commodities should not arise exponentially.
Justification for Public Borrowing in
iv. To Control Depression: As a Country India is currently
current scenario:
looming towards depression due to fall in economic
Advantages of public debt: Being welfare governments,
activities on account of Covid lockdown, migration of
India has to spend a lot on the welfare of their citizens
working-class and job loss. To control this Government
whereas the tax revenue is quite insufficient to meet the
expenditure has to step up to stimulate the economy.
expenditure especially due to covid scenario. The duty of
By increasing the government spending an economy can
government has increased substantially due to COVID and
be brought out of recession. And, government spending
hence, the government should resort to public borrowings.
has a multiplier effect on income and employment.
Hence this proposed additional spending by the
The following are the benefits of Public debt
governments fuelled by public borrowing will revive the
shopping in the current scenario
economy from depression.
i. Unforeseen Emergencies: As a country, we are also
facing a unforeseen situation in form of COVID
v. Providing for Social Services: Health being a state
emergencies wherein central and state government are
subject requires maximum investment from State
facing huge medical, vaccination and other related
Government and currently, state governments are in
expenses pressure.
dire need of fund to support their medical aid system.
The repetitive agreesion on borders from our
Vi. Advantages to Investors: In the current scenario when
neighbouring countries and other natural calamities also
many banks are bleeding with mounting NPA and a few
adding pressure on Government exchequer to deal with
banks were nearly busted, the investors are looking
them in short and long term.
towards the safety of their hard-earned money. Hence
ii. For Economic Development: Due to covid 19, there this is the right situation to provide the investor with
are huge displacement and a job loss of working some respite in form of Government borrowing.
population. Many state government and central
government are trying to create more jobs for its Vii. Finance to Public Enterprise: Currently, to revive the
citizens who have become jobless. This requires spending economy, reduce the import dependence and to support
on economic and social infrastructure. made in India the investment in such projects is the need
of the hour. In times of uncertainties private investor
iii. To Curb Inflation: Needless to mention that India is an or Enterprise would not like to risk his capital in such

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