Page 32 - Banking Finance August 2023

ARTICLE

project without a thorough study, viablity and visiblity, Investors are usually not concerned until the debt-to-GDP
however for overall growth and sustainability and to ratio reaches an alarming level. When debt approaches at
boost up the confidence of private entrepreneurs, such a certain level, investors then demand higher compensation
investment by govt on its own or PPP basis shall provide to compensate that risk in form of the higher interest rate.
a base for economic revival. They want more return for the greater risk. If the country
keeps spending, then its bonds may receive a lower rating.
Disadvantages of Public Debts in the
As interest rates increases, it becomes more costly for a
current scenario
country to refinance its existing debt. Some times, more
In the past, public debt has faced many criticisms by income has to go toward debt repayment, and less toward
economists as its unplanned use has created many monetary public services. We have seen similar examples in a few
and other problems. So, its use may' be made very carefully. countries of Europe, wherein a similar scenario had lead to
Taking loans for unproductive purposes, for extravagance, a sovereign debt crisis.
dependence on foreign investors and outflow of national
wealth are some of the disadvantages. Currently, as a country, we are facing a downgrade of our
rating and we have already crossed the critical benchmark
Hence Public debt serves an important purpose in the
of Debt to GDP. Our one-fourth revenue goes into just
national prosperity if excessive dependence on it can be repaying of Interest liabilities and our average Interest cost
avoided. The government should go for debt shopping only is higher than our GDP growth rate.
when there is no other option.
However, if we compare ourselves with other major
Conclusion: Should we go ahead with economies like China, USA, UK and other European countries
more public debt then our position is better off as far as Debt to GDP ratio is
concerned and as a short term measure to counter Covid
In the short run, public debt is a good way for any country
Scenario and to boost economy we may go ahead with
to get funds to invest in its economic growth and come out
public spending based on public debt. Hence, governments
of recession. With proper planning, public debt expenditure
need to carefully find that sweet spot of public debt. It must
improves the standard of living of the citizens. It allows the
be large enough to drive economic growth but small enough
government to build new roads and bridges, improve
to keep interest cost low.
education and job training, and provide social benefits like
medical, education etc.
Sources:
Governments usually take too much debt because the Various Sources
benefits make them more popular with citizens. Increasing
debt allows the government to increase spending on populist The views and opinions expressed in the article are mine
schemes without raising taxes. and not of the Bank.

28% GST, an existential threat: Online gaming firms
Online gaming companies have reacted strongly to the imposition of 28 per cent GST on full value of online gaming
and casinos, with them pointing out that this is a "killer blow" that forces the industry "into extinction". Offshore
platforms are to gain at the cost of Indian online gaming companies. The GST will be levied on the gross revenue or
total prize pool.
India's online gaming industry is growing at $3 billion with more than 400 million users, at present. According to
Roland Landers, CEO, The All India Gaming Federation, the move is "unconstitutional, irrational and egregious" and
holds online gaming at par with gambling activities.

32 | 2023 | AUGUST | BANKING FINANCE