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Modi govt is technically in default. And this WILL affect your life in the coming days 
The Modi govt’s failure to pay GST dues to states is technically a default in financial terms. A default occurs when a party in a contract fails to pay the dues it is obligated to.
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The Modi govt’s failure to pay GST dues to states is technically a default in financial terms. A default occurs when a party in a contract fails to pay the dues it is obligated to.
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Moreover the Modi govt has cited “force majeur” or “Act of God” as the reason for this default. This excuse isn’t going to fly legally if states sue.
What does this mean? It means that Govt of India (sovereign) has defaulted on domestic debt that it owes.
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What does this mean? It means that Govt of India (sovereign) has defaulted on domestic debt that it owes.
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If states sue & this gets classified as a default, the first thing it triggers is a credit rating downgrade.
India’s credit rating right now is tottering just 1 point above “junk”. This will bring it down to junk.
And this has implications on you directly.
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India’s credit rating right now is tottering just 1 point above “junk”. This will bring it down to junk.
And this has implications on you directly.
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A default+credit rating downgrade means the Govt of India will have to pay greater interest on domestic borrowings (like bonds). Any further debt will only add to a negative outlook.
This is why it’s forcing states to borrow GST dues amount instead of doing so itself.
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This is why it’s forcing states to borrow GST dues amount instead of doing so itself.
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Higher borrowing rates (especially after a default) means the Union govt needs to have extra liquidity.
Taxes can’t be raised due to the pandemic & stalled economy. So it’ll ask RBI to print more money.
Printing more money in this economic condition = inflation.
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Taxes can’t be raised due to the pandemic & stalled economy. So it’ll ask RBI to print more money.
Printing more money in this economic condition = inflation.
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To battle the inflationary effects of printing money (and to match the higher borrowing costs), the RBI will have to hike interest rates.
This means your interest payments on your EMIs will go up & borrowing/loans will become more expensive for you.
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This means your interest payments on your EMIs will go up & borrowing/loans will become more expensive for you.
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Due to the economic hit of the pandemic lockdown, businesses are going to need to borrow for liquidity until things improve.
A slow running business CANNOT afford high interest rates. This will spell doom for small businesses & MSMEs.
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A slow running business CANNOT afford high interest rates. This will spell doom for small businesses & MSMEs.
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Meanwhile, when inflation spirals & job losses increase, the economy will see a further downward pressure. The govt is bankrupt to pay GST dues - so no money for stimulus.
We’re looking at a major crisis hitting us by the end of the year.
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We’re looking at a major crisis hitting us by the end of the year.
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Job losses will continue as business slows. Companies can’t hire as loans get expensive & tighter. Inflation will affect business margins. Unemployed people will be paying more on EMIs. Small business will be dead.
But hey - we’ll have a 20,000 crore “Central Vista”.
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But hey - we’ll have a 20,000 crore “Central Vista”.
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