US Debt Ceiling Crisis & Impact on Indian Economy

With the debt ceiling crisis in the US soaring critically, the US State is on the verge of facing economic downturns, which can be reformed by raising the debt ceiling.

On account of the looming debt crisis, President Biden has precisely reduced his Asia trip travel time and is anticipated to return to the US much early for a critical negotiation with Congressional leaders in increasing the debt ceiling. It holds a direct impact on the Quad meeting, scheduled to take place in Australia.

The US government is facing threats in meeting financial obligations when failed to raise the debt ceiling. This situation gives a prior warning to the recession scenario and market downturns in the US state, which, simultaneously holds a crucial impact on the Indian economy as well.

The US Congress sets a limit over-borrowing on the amount for the Federal Government in financing its operations. Initiated during the First World War, the desired limit allows the US Treasury to free borrowing until a certain desired limit. Governments in the US state are borrowing to fund the deficit, per its increased spending for an efficient running of operations.

The debt ceiling in the US state has been raised nearly 78 times since 1960 and was appropriately raised to 31.4 trillion USD recently. Debt ceilings raised under Republican Presidents are increasingly high, 49 times, to that of Democratic Presidents- 29 times. Wherein, Congress holds the power to suspend the debt ceiling, which was likely put up seven times since 2013. A failure in raising the debt ceiling warns of a recession economy for the US state, causing crucial disruptions to financial markets, and impacting the economic conditions of households and businesses. The US never defaulted on its loan obligations reaching a critical deal with Congress in terms of raising the debt ceiling. 

President Biden met with the Republican Speaker of the House of Representatives, Kevin McCarthy recently to discuss the issues regarding the debt ceiling. As a result, a bill to lift the debt ceiling, including the spending cuts has been proposed, facing opposition from Democrats. The debt ceiling deal is aimed to reach progress soon before June 1st to protect the American economy is facing downturns. A downturn in the economy may raise challenges for the Indian economy owing to the centrality of the US economy to global growth. This very crisis holds a strong impact on the US Dollar, the premiere currency used in international trading.