US Debt Ceiling Crisis
- The debt ceiling in the US is the limit set by the government on how much money it can borrow. It represents the maximum amount of debt the government can have at any given time. When the government reaches the debt ceiling, it cannot borrow more money unless the limit is raised or suspended.
- It was established in 1917 during World War I. The debt ceiling provides the government with flexibility in spending without requiring frequent approval from Congress for each expenditure.
- Currently, the debt limit is set at USD 31.4 trillion, which means the government cannot borrow beyond this amount without congressional approval.
- India has a conventional obligation roof system under the Fiscal Responsibility and Budget Management (FRBM) Act. Unlike the United States, India does not have an absolute debt ceiling in terms of a specific total amount of debt.
- Unlike in the United States, India’s goal is expressed as a percentage of GDP (Gross Domestic Product), not as an absolute number. GDP is the total value of goods and services produced in the country. The Indian government raises funds through the issuance of government securities like treasury bills and bonds in the domestic market.
- The specific debt management strategies of the Indian government may be influenced by fiscal targets, market conditions, and economic considerations.
- The Democrat-led government and the Republicans (Members of the Opposition party), who hold a majority in the House of Representatives, are involved in the current standoff.
- Argumenting that the nation’s debt cannot be sustained, Republicans are refusing to raise the debt ceiling in the United States unless the government agrees to include significant spending reductions and other priorities. To ensure that government spending is limited, they want to attach conditions to programs like Medicaid, food stamps, and cash assistance.
- In contrast, the President states that defaulting on debt is non-negotiable and insists on approval of the debt ceiling without conditions. This has made a gridlock and an expected gamble of default in the event that an understanding isn’t arrived at on time.
- A similar situation occurred in 2011 when Barack Obama was President, but the House of Representatives was controlled by the members of the opposition party.
- The crisis was resolved shortly before the deadline by reaching an agreement. In that case, the president agreed to implement spending cuts totalling more than USD 900 billion in order to resolve the crisis and raise the debt ceiling.
- Possible government default if the debt ceiling is not raised, leading to economic consequences such as a weaker dollar, stock market problems, and job losses.
- The downgrade of the US credit rating made future borrowing more expensive for the government.
- The United States is one of India’s major trading partners, and any economic downturn resulting from a debt ceiling crisis can reduce demand for Indian exports.
- Reduced exports to the US can negatively impact Indian industries dependent on American consumers, such as information technology, textiles, and pharmaceuticals.