Borrowing rates

Jay Kotak compares India and UK borrowing rates

Colonialism is not dead: Jay Kotak

Photo: ET now digital

To borrow from the old adage – money makes the world go round – and debt is the fuel that fuels this movement. Debt fuels growth and fuels the circulation of money in economies, and the gains from it ultimately trickle down to the most basic unit of the system: the citizen. While many factors impact this ecosystem, the cost of debt available to a country dictates growth.

Comparing the Indian government’s 10-year G-sec yields with Britain’s 10-year Gilts, Jay Kotak, the son of prominent Kotak Bank CEO Uday Kotak, said on Sunday that ‘colonialism is not dead’ .

“India is borrowing at 7.5% vs. UK at 4% (10-year government bond). India has similar GDP, higher GDP growth and foreign exchange reserves, rate depreciation exchange rates, public debt and budget deficit to GDP! Not to mention a stable government and political framework! Colonialism is not quite dead! tweeted the junior Kotak.

For the uninitiated, governments borrow money through sovereign bonds, G-secs in the case of India and Gilts in the case of the UK.

Kotak also made a delightful comparison of economic indicators in relation to GDP, GDP growth, year-over-year currency depreciation, foreign exchange reserves, government debt/GDP and fiscal deficit of the two nations.

The Financial Times defines the yield on a risk-free government bond as being roughly “equal to the rate of growth of the economy plus the rate of inflation”.

However, the relationship between GDP growth and bond yields is more complex, especially in developing countries like India. Factors such as currency strength, share in global trade, government subsidy programs and the overall health of the country’s banking system, and last but most important investor sentiment play a major role in determining bond yields.

Kotak’s tweet comes amid a UK bond crisis after the Bank of England launched an emergency intervention program to calm markets after a government tax cut plan took hold. drives up borrowing costs. The debacle even led to a downgrading of the UK’s credit rating by S&P, while Moody’s threatened to do so as well. S&P on Friday assigned a “negative outlook” to the country’s credit rating, maintaining an AA investment grade.

Kotak studied history at Columbia University, then did an MBA at Harvard University.