Tuesday, March 21, 2023

Rising Debt Burden


By Satish Singh

The corona virus has not only killed people untimely, but has also forced people to take more loans. Millions of people have become unemployed due to Corona. The business of self-employed people has also collapsed. Those who are doing business or doing jobs in the private sector, their income has also come down drastically. On the one hand, due to the corona pandemic, the life of the common man has become difficult, and on the other hand, inflation has also increased the economic difficulties for the common man. Expenditure on health has also increased. Due to the fear of Corona, a large number of people are getting health insurance.

Due to decrease in income or closure of sources of income, the debt burden on every person has increased from Rs.34 thousand to Rs.52 thousand within just one year. In the financial year 2019-20, each person had a debt of Rs.34,304, which increased to Rs.52,273 in the financial year 2020-21. If we look at the debt in terms of gross domestic product (GDP), then in the financial year 2020-21, the domestic debt increased to 37.3 percent of the GDP, which was 32.5 percent in the financial year 2019-20. It is noteworthy that in the financial year 2017-18, the domestic debt was only 30.1 percent of the GDP. Thus, in just 4 years the household debt increased to 37.3 per cent. If we look at this growth rate in percentage, then in 4 years there has been an increase of 23 percent in household debt.

According to the budget presented for the financial year 2020-21, the country’s GDP was Rs.194.81 lakh crore, in which the share of domestic debt was 37.3 percent, which was about Rs.72.66 lakh crore in the amount. At the same time, according to the international organization World Meter, the population of India in the year 2021 is about 139 crores. If the total household debt is divided by the total population, then the average debt per person will be Rs.52.12 thousand. if we Calculate from this method, the per person debt in the financial year 2017-18 would be Rs.29,385. Thus, the per person loan increased by 78 percent from the financial year 2017-18 to the financial year 2020-21 or in the last 4 years. 

The Goods and Services Tax (GST) was implemented on July 1, 2017. Many businessmen had suffered losses due to the hasty implementation of this new system of tax. The business of many businessmen was completely destroyed. Businessmen were forced to take loans for their living and in this sequence some businessmen also got caught in the vicious cycle of debt.

In July 2017, the unemployment rate was 3.4 percent and the retail inflation rate was 2.41 percent. The unemployment rate rose to 8.8 percent in March 2020 and to 9.17 percent in June 2021, while the retail inflation rate rose to 5.52 percent in June 2021. The wholesale inflation rate was 1 percent in March 2020, which increased to 7.39 percent in June 2021. It is clear from these figures that both unemployment and inflation have increased in the last 4 years.

However, India is not the only country in the world where per person debt has increased. According to data from the Bank for International Settlement, the share of domestic debt in the US, UK, China and Japan is more than that of India. The household debt in Korea is 103.8 percent. In second place is Hong Kong, where the domestic debt is 91.2 percent. Britain is in third place, where household debt is 90.0 percent. The domestic debt in China also stands at 61.7 percent, while the domestic debt in the US is 79.5 percent.

The corona pandemic in India is not over yet. The new variant ‘Delta’ of the corona virus is more dangerous than the earlier corona variants. Due to this variant, there is presumption of the arrival of the third wave, because the infection rate of this variant is almost twice that of the virus causing the second wave. It is noteworthy that the third wave is expected to reach India in August and it is likely to reach its peak in the month of September.

In Rajasthan, Himachal Pradesh, Delhi, Kerala and Uttarakhand, almost 100 percent of people above 60 years of age have taken one dose of the vaccine and a large number of people of said age group have taken the second dose. This is really news of big relief, because at present, the attack of corona virus can be avoided only by vaccination. According to the official website of Covin, till July 9, 2021, 29 crore 71 lakh 50 thousand 970 people had taken the first dose of corona vaccine, while 6 crore 98 lakh 85 thousand 934 people had got both doses of corona vaccine. However, this number of vaccinations cannot be said satisfactory, because the population of India is 139 crores. Vaccination has the most important role in bringing the economy back on track. Therefore, there is a need to accelerate the process of vaccination even more.

Due to the Corona pandemic, the income of people around the world has decreased. For this reason, people have to take loans. There was a spurt in GST collection in the last months, but again in the month of June 2021, the GST collection has come down. Due to the hasty implementation of GST, many businessmen had to suffer huge financial losses. The business of many small entrepreneurs was also ruined. Therefore, GST can also be considered an important reason for the increase in per person debt.

It is not possible to make any predictions about when the corona pandemic will end, because now the third wave of the pandemic is being said to come. Therefore, it is important that everyone get the corona vaccine done as soon as possible. Vaccines can only save us from corona at the moment and can also accelerate economic activities.

(Author is Chief Manager at State Bank of India, Mumbai. The views expressed are personal opinion of the author. He can be reached at [email protected] and [email protected])


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