Make no bones about it, Meghalaya is in debt. But so is practically every other state in the country. On top of that, the central government also borrows more than it earns.
This is all very normal in the modern age of balance sheets, bonds, capex and other financial mumbo jumbo.
How much debt is too much has become an impassioned subject in the ongoing Assembly session. The opposition contends that Meghalaya is borrowing too much and will be saddled with massive debts that we will be paying off for decades. The government, however, argues that the state is borrowing to invest and the gains will provide us with the means to service this debt in the future.
It would be helpful if there were individuals who can assess the budget and the claims and counterclaims and explain all this in layman’s terms. Because, frankly, it is doubtful that our opposition MLAs have much of a grasp of finance and economics. Not only they, but even the Treasury benches probably lack much understanding, not to mention most of our bureaucrats.
When an individual borrows to buy a fancy car that is not an investment (except in certain circumstances). If the person cannot meet the repayment schedule, the bank could repossess the car. And if that person borrows more money to pay off the car loan, that is just kicking the can down the road and may make things worse.
However, if a person borrows to buy a piece of machinery that will expand their business further, that would be an investment. So long as the business grows and profits increase, the individual should be able to pay off the loan.
The state government argues that it is following the latter example – investing in Meghalaya’s future growth.
Where things could go badly for the state is if its projections of growth fail to materialise. India’s stock market has lost $900 billion in value since its peak in September as the global economy experiences a period of uncertainty thanks to the new USA administration, the continuing war in Ukraine, instability in the Middle East, etc. There are also fears for India’s harvest this year – last month was the country’s hottest February in 125 years – and a big chunk of the nation’s economy is still tied to agriculture.
Meghalaya has been banking a lot on tourism to fuel its growth but if the Indian economy takes a big enough hit, visitors may think twice about spending on a holiday here. If the general economy also worsens, Meghalaya may not receive as much in terms of taxes, both at the state level and its share of central revenues.
The Chief Minister has also pointed to the state’s continuing above average GSDP growth as a sign of a healthy economy. What is not clear is how much the government’s own spending is driving this growth, which may be unsustainable in the long-run. Despite the growth, Meghalaya has (in 2023-24) the third-highest proportion of outstanding liabilities to GSDP, at 42.1%.
Going into debt is fine when the good times are rolling but the danger is when sudden shocks bring the party to an end.
