As a student of Finance, Debt and Equity have always been the conceptual building blocks in my studies and in my professional life. As a quick basic introduction, both are modes of financing operations of any entity. Debt financing involves provision of capital with a promise of periodic interest payments (fixed, floating or zero) and the repayment of the upfront capital along with total interest at the end of the tenure - a home loan & the EMIs associated with it are a classic example. In this mode of financing, the financier does not have any ownership in the enterprise to which the financing is provided. As against this, in Equity financing, the financier has direct ownership (either active or passive) in the entity to which the capital is provided. The most prevalent example is owning a common share of a publicly listed company making the owner of the share a shareholder in the said company and hence a proportionate 'owner' of the entity and its business. Being an owner of the business exposes one to its risks and rewards in significantly higher proportion. The cash flows are irregular more to say and the primary source of gain is from capital appreciation of the value of the business, i.e. the Market Capitalization, of the firm. Thus, more often than not, Debt has assured cash flows, fixed periodicity and lesser risks attached to it along with zero ownership in the enterprise while Equity has proportional ownership, irregularity of cash flows and higher risk/reward attached it. For the sake of this blog, I am ignoring the convertible modes of financing.
With the basic of Debt and Equity behind us, I'll proceed with a keen observation of mine which has grown stronger in the past few months, on how politics has evolved or changed in the past five years if I look through the lens of Debt & Equity. Till 2012-13 approximately, we could see the Debt Model operating in full flow while post it, the Equity model has started taking shape with increased proportion as a percentage of our total population. I am seeing comments over the social media and outside it as well which are indicative of this difference though I am yet to come across any article explicitly putting forth such an observation. Let me elaborate:
