Is India Drowning in Debt? And, it's impact on YOU | Akshat Shrivastava

hi everyone welcome to today's video so on today's video I'm going to help you understand that where India stands in terms of its debt level that one political spectrum is telling you that you know what all this is nonsense information the second tells you that hey this is very serious issue it will impact your taxation whatnot so on this video I'm going to help you understand the economics behind everything around debt this is a highly complicated macroeconomics topic I'm going to detail out the information in very simple easy to understand words even if you don't know anything about economics Finance you will get this video but you will understand this video so without wasting any time let's jump right into the topic so let's understand that what is the meaning of debt for example for example when you take a loan to buy a house or a car or a fridge or whatever it is you are taking a debt and Emi similarly at a national level also we take a debt and almost every country on earth is debted and so second related because the world keeps on growing and as India grows more and more and similarly debt will also rise right so for example why because adani is really really big industrialist and we are not so something similar happen happens on a country level also so a more important angle or a more important metrix that we need to take a look at is called as debt to GDP ratio increase right so that is what debt to GDP would mean so here is a data for you from 20 18 to all the way 2028 and you will see that debt to GDP ratio from 2018 onwards it has actually risen and it is staying constant around this 80 82% Mark okay so this ratio is more important rather than saying [Music] trilon more important Ratio or the first key ratio that you need to understand is called as debt to GDP ratio and our situation could be considered as moderate so why modate so for this let me show you a second snippet here so here you will see that Japan has approximately 450% debt to GDP ratio similarly you have Canada to GDP ratio so on and so forth and you will see India's ranking there 400% 500% this that it's okay so here is you need to understand the strength of the economy argument now what is the meaning of strength of the economy argument so so again so see I'm a small guy I'm nothing in front of him so like in reality I have zero debt I not taken debt for anything so I'm on zero debt but so typically speaking what happens to average People Like Us is that hey maybe our salary is like one lakh and so in a year it becomes 12 right and let's say that home loan em and loan Emi comes out to be 50,000 Rupees a month so salary how much salary 12 laks and 50,000 time 12 which is equal to 6 lakh so what is our debt to salary level well it is 50% now the important thing that you need to note on this example is or a point that you need to consider is that how many assets do I own right now if the short answer is that hey that your debt to salary level is 50% and you own zero assets or zero cash flows and real estate bonds stocks then honestly this is very very high levels of debt okay on the flip side let's work with example now is a very big industrialist now let's say that his Deb to salary level might be 120% or 150% or whatever now do you see scenario one being more problematic average salary de to salary level is 50% or do you see scenario B more problematic now the choice is yours you need to bifurcate that answer and think about it but just looking and comparing this data because a lot of arguments are being this that you need to think through the strength of the economy example and I'll cover one final point and then I will start explaining you the difference between internal debt and external debt because external dat so is there something to worry about or not I will explain you that point also but okay let me conclude this debt to GDP whilea Point by showing you this important chart let see from 2010 there has been a massive increase in our gross debt to GDP ratio right you can clearly see that we are almost hitting alltime high so to say but this increase in debt to GDP is something that has happened fairly recently okay so then comes the next topic which is a you know what boss I've been reading in the newspaper that external debt is very dangerous but internal debt is not very dangerous and India seems to be doing fairly well on that okay so let me help you understand and decode this topic by using some relevant examples from economics okay so now when it comes to studying debt at a national level there are two types of debt that are out there in fact categorizations but two important categorizations here would be external debt and internal debt now EX for example if you are taking money from your brother or sister or father mother that is what type of debt that is an internal debt or if you take it from your boyfriend girlfriend wife husband that's internal debt for example you borrowed like 10 lak rupes and you say you know what I'm going to return it in 6 months then six months comes you don't return it roll over then you know one year two year and forever so that is internal debt right now every country on Earth gets this option of printing money and keep on increasing its debt okay so that's one way of creating more debt locally or internally speaking so to say another have BS you haveu so basically Bond ISS you go and deposit that money so you go and give your money to the government they take that money right and what are you doing you are basically giving a debt to the government and what type of debt are you giving you are giving an internal debt so to say okay so this is an important bit okay now comes the second part which is external debt now ex and from a bank going so external debt is always a problem and this happens at a national level also so comes the natural question that okay why is it that the Indian government might take external debt well because right they cannot forever fund it through that so they have to have another Avenue of exploring external debt also and to keep their external debt in check what is it that the Indian government needs to do well it needs to maintain something called as Forex or Forex reserves right just India Indian government RBI plus Indian government they buy gold physical similarly they buy US dollar INR Falls too aggressively then the Indian government SL RBI sells those US dollars right in order to balance the INR right so currency weall now if Forex reserves so it becomes a problem but problem external debt for example Sri Lanka was a latest case study Pakistan was a latest case study China why because they had very high levels of external debt when you have very high levels of external debt and us or China Russia then what is it that happens well the country could lose a part of whatever right and all that stuff so that is called as loss of sovereignty so I hope that this complicated topic of external versus internal debt is clear and this was a fairly complex topic to explain I hope I use Simple example to explain it if you enjoyed this and if you're enjoying this video then do consider liking and subscribing to this channel it helps with the channel growth also and it allows these type of videos to reach out to more people so okay so then situation external debt Co so let me just help you understand Again by using the Matrix external debt as a percentage of GDP percent of GP so for example 201 external then it flatlined here then it rose again then it came back down top know what it's not like this for example you will see what you will see literally a sine wave type of a thing what is this this indicates a sine wave or a business cycle Deb key cycle even externally that is driven by business circumstances that is driven by business trade that happens across the globe so current government on external debt so it's average that's what I'm trying to tell you and that is the honest economic answer there now one key point that I would like to highlight here is that the internal debt for example internally you use that money to pay off your external debt then you go and Chuka your loan at the bank so what are you doing you are raising internal debt in order to pay off your external debt now at National level figuring out this data is extremely deeply complicated because these are accounting entries so Indian government right now is it converting or raising more internal debt and using it to offset its external debt is that really happening or not happening and this is an area that hardly anyone is investigating I could hardly find any information on on this topic but I will guide you in the right direction you guys can go research more online and then you can drop in your comments in case there is a very good explainer I'll make a part two of this video so okay so number one if internal money has to be raised and for offsetting external liabilities or external debt how can it be done in a way so s examp Bond data chart and this is the RBI gold buying data now this is physical gold that RBI is buying you can see that March 2020 to May right from like almost 800 T gold in 2009 it was 350 ton so they are buying real gold okay so this is one so what are they doing they are actually building foreign Reserve right so this is point1 now what is sgv sgv is type of a debt that government is Raising that is increasing more internal debt right of Forex Reserve indication that is not repaying of debt but what I'm trying to say is that see what is it that they are asking you to do they asking inv now when you go and invest money in sgb what is happening you are giving an internal debt to the government government is picking that money and building its Reserve so that our Forex Reserve has gone up yes it has gone up the entire Forex reserves have gone up because a part of it is gold but now you need to debate the number sitting 80 85% as debt levels as a percentage of GDP is that high or no and here you are going to get subjective answers it's 400% this that stuff but some will say that you know what this 80 85% is high what is my answer to this well my answer is that okay it's completely okay to take debt you can even take like 150% debt but are you spending that money productively because what is the end goal of taking debt for example Deb and if you are taking a debt to buy an iPhone productive instring it's a waste of time effort money debt okay there's just no point behind it but on the flip side if you buy that same iPhone on debt and you are able to become a content creator and so that is productive debt one could argue so according to me it all comes down to the productivity of debt and there are two data points that we can look and in order to assess the productivity of debt there is a matrix called as gross Capital formation as a percentage of GDP what is the meaning of gross fixed Capital formation see just for example right now that road will lead to faster moving of cars now cars will go from point A to point B that worker who is sitting in that car might be able to write more codes and we will be able to export more services now that one could argue is productive use of debt what will be unproductive use of debt for example debt and now you are giving out ration ration pay ration for 800 people and subsidize rates now I'm not trying to debate the social justice part of it I'm just trying to debate economics that one is a productive use of capital where you are creating something fixed that gives you returns but on the flip side if you're just using it to sustain your expenditure that is not a productive use of capital so to say now please and then you cannot tag that as productive use of capital so again coming back to the topic see there are two data points that I will show you now so this is the gross fixed Capital formation as a percentage of GDP and this is for the entire world world has actually started to use its debt more productively which is a very healthy sign 23 6 what is the situation in India so this is the situation in India that from 2007 it has been going down down and down so freebie economics that is actually not helping India ultimately this is going to come back and bite you back in some form or the other what are two three forms in which this can bite you so it can number one bite you in the form of higher taxation already B for example personal income tax indirect income tax is one of the highest in India right now that's again a problem on top of this over the last 2 three years the capital gains tax has risen 95% people anyways don't invest so they anyways don't care examples right for example after 2023 budget the indexation benefits on debt mutual funds have been crushed right so there is nothing left if you are now doing debt mutual funds on capital gains yeah so that's a problem similarly if you look at the capital gains on selling of property it's fairly high it's like 20% is the long-term capital gains on real estate which is again very very high but there are services that you get for example what Education Service are you getting in India tell me right here is a gentleman who posted about his kids play school fees okay you can go and check this is actually happening I know of schools inhi so one friend of mine was telling me that British school in Delhi It is charging a donation of 97 lakhs for class one student 97 lakhs okay Scandinavia okay fine you are paying like 55% tax or whatever but at least education free high quality education is free okay so as a citizen what is it that you want you want better education you want better Healthcare so if these two things are sorted then almost 70 80% of your requirements are sorted and of course third comes the job or in fact first comes the job but education healthare and job then yes pay high taxes no problem but in India the unemployment problem is going up like crazy I healthare out of pocket if you want to Avail any kind of basic healthare quality wise facilities you have to pay out of pocket same happens right so I don't know what the end game here is but it does not look very nice one of the primary reasons why all this stuff is happening is that the debt that is raised in India whether internally or externally it is being spent unproductively the data tells us that the ONG ground evidence be it in healthcare be it in education be it in anything that you see that also tells us that so kindly refrain from making this video political this is a video for your benefit only action plan then it is going to benefit you only so then comes the next point and the next question that okay can this debt level go down or is it going to burst okay so it literally comes down to two points number one is our GDP going to grow faster in real terms compared to the rate of increase of debt a second and related Point here would be that the revenues that the government is Raising for example tax indirect direct agricultural are they using that money productively or not if they use the money productively then that will lead to gross fixed Capital formation which will ultimately lead to more employment more subsidization of taxes so to say etc etc and that will result in more benefits for you and as the GDP grows in real terms then the amount of money that the government is getting will rise and that money can be used to offset taxation at a certain point in time so there are four or five steps and I will write a detailed note on my member Community post tomorrow also regarding the same I'm doing a lot of workshops so please go and check these get filled out very quickly so Hyderabad Workshop is completely full the next Workshop will be in Mumbai so you can go and check out the details I will teach you everything from scratch as to how to deal with this entire situation how you can improve your Investments but just quickly summarizing four or five key points so Point number one that India key debt situation right now is not at unmanageable levels but we are slowly going towards that path it does not look very Rosy I'm being point blank with you you have to do your preparations for yourself and your family this is point one point two going forward we are going to see high inflation High real inflation in the economy the way our inflation basket is designed is completely flawed it is unrelated to whatever happens on the ground you can again go and check this tweet that I had done you will understand it right you yourself will see that real inflation what is actually happening on ground is very very different from government is telling you third key thing you have to inflation proof your portfolio what is the meaning of inflation proof for example invting because if you just simply keep on buying debt PF ppf years ago also the return on PF PF was how much 88 and a half% now also it's how much 88 and a half% was inflation the same pre like to 2020 the short answer was no now inflation is much higher and and still you getting the same returns so to cut the long story short if you just get into the habit of doing like p% you have to beat inflation if you're not beating inflation you're working you're way towards high taxation and poverty so I hope you got the message and you enjoyed watching this video if you did do press the like button and I'll see you soon

Channel: Akshat Shrivastava

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Keywords: akshat shrivastava, cases over coffee, wisdom hatch, wisdom hatch courses, stock market courses, akshat shrivastava courses, stock analysis, stock market returns, indian stock market, how to make 100 crores, investing in india, investing for beginners, nifty 50, akshat shrivastava stock market courses, how to build wealth, making money in stock market, akshat shrivastava portfolio, zomato, india gdp to debt ratio, macroeconomics, global economics, us debt, us printing money

Id: hW1UJVMeSsg

Length: 21min 0sec (1260 seconds)

Published: Sat Apr 13 2024