Total outstanding debt of the Government of India, called “public debt” or “national debt”, is estimated to reach Rs. 73,72,000 crore on 31st March, 2019. It has increased by almost 50% in just four years. On average, every woman, man and child in our country is carrying a debt of about Rs. 60,000 on his or her head.
Interest payment on debt is the largest item of recurring expenditure in the central government budget. It is projected to reach Rs. 6.65 lakh crore in 2019-20, which is one-third of the total projected revenue of the central government.
Who receives this massive amount of interest paid every year by the central government? According to data available for 2017-18, about 80% was received by capitalist institutions, headed by commercial banks and insurance companies, both public and private, Indian and foreign (see the Figure). The remaining 20% was received by individuals who own government bonds or have saved in small savings schemes and provident funds.
The burden of paying enormous amounts every year as interest on the national debt falls on the heads of the entire people. As the annual interest burden increases, so does the tax burden. Ever rising levels of indirect taxation leads to ever increasing prices of goods and services.
Public debt makes it possible for the idle money of the capitalist class to get converted into capital, into ever-expanding wealth, without the capitalists having to expose themselves to the risks involved in investing their money productively. Moreover, money held in the form of government bonds can be readily converted into cash, unlike the capital invested in productive activity.
Interest on public debt is not a share of new value added. It is a drain on public resources.
When capital is invested in an industrial enterprise, surplus value is generated through the exploitation of wage labour. A portion of this surplus value is claimed by those who have loaned their money. This is not the case with public debt.
Most of the loans the government takes every year are not linked to any particular productive activity. There is no surplus value being generated by government expenditure on public administration and defence. The interest being claimed by the banks, insurance companies and other money-lending institutions is a claim on the annual revenue collected by the Government of India through taxes and other levies. In other words, it is a form of robbing the people to enrich money-lenders.
Following the nationalisation of banks in 1969, Government of India followed a policy of borrowing mainly from the state-owned financial institutions at a lower than market rate of interest. This policy was criticised by the IMF and World Bank as “financial repression”, meaning that it restricted the profitability of banks and insurance companies.
Karl Marx on Public Debt
“The only part of the so-called national wealth that actually enters into the collective possession of modern peoples is – their national debt. … As with the stroke of an enchanter’s wand, it endows barren money with the power of breeding and thus turns it into capital, without the necessity of its exposing itself to the troubles and risks inseparable from its employment in industry or even in usury”. [Genesis of the Industrial Capitalist, Chapter XXXI, Volume I, Capital, Progress Publishers, Moscow 1977, page 706]
“The state has to annually pay its creditors a certain amount of interest for the capital borrowed from them. … The capital itself has been consumed, i.e., expended by the state. It no longer exists. What the creditor of the state possesses is … the state’s promissory note … the capital of the state debt remains purely fictitious, and, as soon as the promissory notes become unsalable, the illusion of this capital disappears.” [Component Parts of Bank Capital, Chapter XXIX, Volume III, Capital, Progress Publishers, Moscow 1977, pages 464-65]
Starting in the 1990s, under the banner of liberalisation and privatisation, private banks were encouraged to expand; and public sector banks were compelled to compete with them and maximise their profits. The government began to pay commercial rates of interest on all its borrowing. This has fuelled an accelerated growth in the annual interest burden.
The vast majority of people will benefit if the government balances its expenditure with its revenue and stops incurring annual deficits, thereby liberating the people from the burden of servicing this debt. Why is this not the aim of official policy? The reason is that the capitalists, Indian and foreign, do not want to give up such a guaranteed source of profit as the interest on public debt.
It is possible to put an end to the parasitic system of public debt. To do so, the economy has to be reoriented. From being oriented to fulfil capitalist greed, social production must be reoriented to fulfil human needs. Instead of being geared to maximise their profits, banks and other financial institutions must be geared to fulfil the needs of social production.
With this strategic aim of reorientation, the working class and people must contest the exorbitant claims of money lending institutions, which are sucking out the largest share of public revenue in the form of interest on public debt. Interest on central government debt is more than 20 times the central health sector budget and more than 17 times the education budget.
If interest paid to the money lending institutions are suspended temporarily, it would save more than Rs. 4,00,000 crore per year. It would make it possible to spend much more on public education, health and other essential services, as well as to reduce the deficit and thereby the need for additional borrowing.