#202 The Debt of the Future

<p><strong>India Policy Watch: Passing the Burden</strong></p><p><em>Insights on burning policy issues in India</em></p><p><em>— Pranay Kotasthane</em></p><p>As <a target="_blank" href="https://publicpolicy.substack.com/i/221389/a-framework-a-week-wilsons-interest-group-ig-matrix">Wilson’s Matrix</a> tells us, concentrated benefits (costs) trump diffused costs (benefits) on most occasions. Organising people around diffuse interests is difficult. As a political articulation of these voices is difficult, they are consigned to being a background hum in the cacophony of politics. </p><p>One such diffused interest group is the future generation. Apart from the common difficulty that all diffuse interest groups face, they face a small, little additional problem — they aren’t even in this world to be able to speak for themselves.</p><p>Hence, it shouldn’t come as a surprise that governments and societies shortchange future generations by borrowing more than their means for current consumption and passing this burden to the future generation. </p><p>India is no exception. Even today, the biggest expenditure item in the union budget is neither defence nor home affairs, but the interest paid by the union government to borrowers on past loans. We are paying for the profligacy of past and current governments. The chart below from this year’s budget tells us that roughly a fifth of the government’s total expenditure is being spent on interest payments.</p><p>As we keep living beyond our means, the portion of the future generation’s spending on interest payments keeps growing. This is what a real debt trap looks like. </p><p>Most governments run deficits, and so does India. But the quality of deficits matters. If governments borrow to finance physical and social infrastructure, the burden on future generations is mitigated to the extent that the outputs continue to be available to them. </p><p>But that’s not the case in India. The union government still runs a sizable revenue deficit, meaning that a portion of the borrowing i