emerging im-balance (borrowing-savings)

Traditionally it is expected that the households should be net savers pumping money into the banking and govt. bonds. This money in-turn is used by banks to back successful enterprises creating wealth/employment and by the govt. to create infrastructure or a ground for further growth of the nation.

The peculiar trend is emerging in India nowadays.

With the growth of easy EMI, house/car/appliances/and even foreign vacation loans, the average Indian household has become a net borrower. They have huge credit card dues (that includes me too) and loans for almost every planned and unplanned assets they own.

Look at all the IT giants and growing companies. They have hardly borrowed anything from the banking system, instead are sitting on loads of cash/reserves which they are clueless about how to deploy. Most acquisitions and expansions which you hear about nowadays are funded by cash flow/internals.

Govt. of India borrows tons of funds from the market at very high interest rates. At last glance it was paying 9% (tax free) on PPF (which roughly translates to 11% when the banks give me only 5% on savings) to pay for the huge bureaucracy and the unviable PSU.



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