India’s road to fiscal ruin

Discussion in 'Economy & Infrastructure' started by Galaxy, Nov 2, 2011.

  1. Galaxy

    Galaxy Elite Member Elite Member

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    India’s road to fiscal ruin

    Nov 2 2011

    Ourviews, Pranab Mukherjee, Tax, GDP, Fiscal deficit, UPA

    [​IMG]
    “My appetite is infinite and my greed is more.”

    These words were uttered not by a banker or CEO from the top 1% of the income pyramid, but by finance minister Pranab Mukherjee. He was exhorting his officials to ramp up tax collection, according to a June report by the Press Trust of India. His government’s addiction to ever-increasing spending is decimating the nation’s balance sheet. India now is on the dangerous trajectory of persistently high inflation, increasing taxes and slowing growth.

    The combined central and state receipts in 2004-05 were around Rs. 5.87 trillion , whereas those for 2009-10 are nearly twice as much at Rs. 11.83 trillion. Yet government spending has more than doubled from Rs. 8.34 trillion to Rs18.30 trillion. The Union government is more at fault here because while its earmarked share of total receipts grew more slowly, central spending actually increased faster.

    As a share of gross domestic product (GDP), net central taxes under the United Progressive Alliance has hovered around 7% whereas the state’s revenues (through grants and local revenues) has been around 8% – for a combined tax-to-GDP ratio of 15%. But combined spending has gone from around a fifth to a fourth of the economy, resulting in a consolidated deficit of around 10%.

    Fertilizer subsidies have more than tripled from Rs. 16,000 crore to Rs. 52,000 crore. Pension and other retirement benefits increased from Rs. 55,000 crore to Rs. 132,000 crore. Yet annual disinvestment increased haphazardly from Rs.17,000 crore in 2003-04 to just Rs. 26,000 crore in 2009-10, despite rapid development of the capital markets and the capacity of the private sector to absorb state assets over this period.

    In the midst of this runaway spending, there is only one major sector where allocations haven’t increased much – defence services. Expenditure went up from Rs. 32,000 crore in 2004-05 to Rs. 48,000 crore in 2009-10, basically flat in inflation-adjusted terms and a decline as a percentage of GDP. These numbers dramatically betray the unfortunate priorities of the UPA - there has been a focus on populism and loan waivers galore with no priority being assigned to longer-term priorities like defence and physical infrastructure, the sorry state of which need not be repeated.

    It is not the case that even the enormously increased central social expenditure has been well-targeted or has helped alleviate poverty in any way. Only recently have some steps been taken to make subsidies more efficient, with the enunciation of the UID project in 2009 and tentative reforms of fertilizer and petroleum subsidies.

    There is also a belated realization that the “infrastructure” created under schemes like the National Rural Employee Guarantee Scheme (NREGS) is far from durable. NREGS bans the use of machinery and forces the poor to work strenuously without developing any significant skills for themselves or building long-term assets for their villages. It would be cheaper to instead have conditional cash transfers and to allow creation of rural infrastructure using industrial equipment.

    The government’s reckless spending is crowding out the private sector and impeding growth. Slowing growth can be fatal for a country which has a demographic profile like ours, with nearly a million productive jobs needed to be created every single month till 2030 so that our youth can be gainfully employed. There isn’t a more deadly brew than an aspirational youth frustrated by the denial of opportunity and economic advancement - low growth in such a scenario may create even more social instability.

    Till recently, the UPA had been politically lucky. It inherited the growth benefits of its predecessor NDA government’s reforms and a global liquidity boom, and used the consequent booming tax revenues to finance an unprecedented and uncompromising focus on politically-motivated social expenditure to buy votes. Then, with the global financial recession, it retrospectively justified part of the growing fiscal deficit as an astute fiscal stimulus. To top it off, the global downturn happened to play out in such a manner that inflation hit zero right around the last general elections were held, while hovering near double digits both before and after elections.

    The postponement of tough economic policy decisions had to eventually lead to inflation, corruption, slower economic growth and consequently fewer jobs. Today, the government is insisting on passing the Food Security Bill that would further expand spending, with no clarity on how it would be paid for in the longer run. But with national elections over two years away, the UPA finds itself cornered without any solutions except raising taxes, reducing spending and initiating tough reforms.

    Pranabda and other UPA leaders should know better - ravenous appetites have a nasty way of catching up.


    (Rajeev Mantri is director of GPSK Investment Group and Harsh Gupta is director of Catallaxy Finance.)

    Views | India’s road to fiscal ruin - Views - livemint.com
     
    Last edited: Nov 2, 2011
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  3. Iamanidiot

    Iamanidiot Elite Member Elite Member

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    Amul moron's NREGA and NAC jhollawallhs will bring useless spending to such a level that they will ruin us.Iam hearing they will hike the petrol rate again next week
     
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  4. Naren1987

    Naren1987 Regular Member

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    Should this crisis come, I hope it comes before 2014, I don't want our people to make a mistake like we did in 2004 and 2009.
     
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  5. Falcon

    Falcon Regular Member

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    Seriously. This is pure crap. I don't understand how they plan things. How they keep spending our tax money while everything remains the same. They are more interested in building flyovers and less interested in developing the basic infrastructure. I want this government to go away and BJP to get another chance.
     
  6. Naren1987

    Naren1987 Regular Member

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    They were also more interested in more reservations, rather than get the Primary education right.
     
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  7. Adux

    Adux Senior Member Senior Member

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    Do you know how they are ruining Private education institutions by instituting total governmental control on them as well as 25% free seats ! The people who will loose out are the institutions run by the majority community, since they have no money as donations coming from abroad like the other two.
     
  8. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    And may I add, an ever increasing debt trap!!!

    The annual budget is heavily loaned, and each year as a % of gdp the debt component just keeps increasing.

    It’s a vicious cycle we are getting into. Till the time the country can sustain strong growth, the overall picture will look good, but in case the growth starts to falter, which it is bound to at some point in time and with the economic policies being followed we might hit the wall pretty soon, we are bound to be caught in a very bad situation. Its happening in Europe today, India seems to be headed in the very same direction.

    Difference between Europe and India is, there are no social unrests there, but here its all over the place.

    Its indeed a road to fiscal ruin.

    And you top it all with a near dead decision making. Corporate heads have been shouting for long on the issue, but there seems to no impact on the deaf, dumb, blind government. We are cursed with the worst sort of political leadership.
     
  9. Naren1987

    Naren1987 Regular Member

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    Fully aware of it, not only will they not provide us with decent higher education, but also kill the institutions than can do so.
    And then the left has the audacity to shriek that the Indian state only provides for the Upper Caste Hindus.
    How I long for a Center Right government in India.
    I don't know whether this will happen to the primary institutions as well.
     
    Last edited: Nov 2, 2011
  10. Naren1987

    Naren1987 Regular Member

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    First things first, why the heck are we providing farm subsidies to uneducated farmers?
    In a system that is supposed to work, you're only supposed to focus on your more productive people.
    The backward farmers don't have the education to use these funds for greater output.
    We should only provide subsidies to the areas like Punjab,Haryana and WB which are actually doing a decent job.
    Secondly, why can't we cut the middle man?
    Why not directly pay fees for underprivileged students so that they never end up in a Babu's hands, same for healthcare, etc.

    Thirdly, why can't they get it that rising interest rates is NOT a long term solution to contain inflation?
    The money spent for the failure that is NREGA, should be spent in improving our transport infrastructure.
     
    Last edited: Nov 2, 2011
  11. Naren1987

    Naren1987 Regular Member

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    Don't know why they thought it was a great idea in the first place, it certainly didn't solve hunger in a state like Kerala, which has low fertility rates, and decent land.
     
  12. Yusuf

    Yusuf GUARDIAN Administrator

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    Doing away with archaic subsidies is a start as also sick units which prefer to be a drain on the country and pander to unions than pull up its socks.
     
  13. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    pure politics, remember the loan waiver. its what is called vote bank politics. as i said we are cursed with the worst sort of political leadership.

    this can be addressed but the issue is that the prices have artificially been so much inflated in the name of providing better deals to the farmer that for now the market is bound to be kept inflated even if there is direct procurement, but surely can be addressed.

    its pure idiotic to do that, and this government has repeatedly been doing it. they just dont have a long term plan, leave that aside, not even a mid term plan.

    what the government has been doing is not address the productivity, or the supply side, but purely culling the demand. for who so ever's sake, we are pretending to be the fastest growing economy, but then UPA I/II have now been sleeping over economic reforms for 7 and a half years now and they still dont get it.

    india even in these trying times could have been easily clocking double digit growth rate figures, but alas!

    UPA rule has all been about missed opportunities.
     
  14. Naren1987

    Naren1987 Regular Member

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    These chaps can't even plan their own daughter's wedding and..., honestly, if these are the only people, who we think can build a nation, we are truly doomed, they need a basic lesson in project management and not in Keynesianism.
    The only politicians that have impressed me are Nitish Kumar and Narendra Modi.
    For eg, NK's plan for Bihar.
     
  15. Adux

    Adux Senior Member Senior Member

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    Right to Education Bill! Kapil Sibal is a complete tool
     
  16. Param

    Param Senior Member Senior Member

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    Whether BJP comes to power next time or Congress, Reservations and Quotas are here to stay.

    Btw,this thread is titled 'India’s road to fiscal ruin'
     
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  17. sky

    sky Regular Member

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    socialism works really well until you run out of people' money to spend,looks like thats whats happening in India,just surprised because of mms's background as a economist..
     
  18. Naren1987

    Naren1987 Regular Member

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    That is true!!
    We're talking about the short sightedness of our political class, this is relevant.
     
  19. Yusuf

    Yusuf GUARDIAN Administrator

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    Socialist model has failed and the biggest proponents of it took to capitalism. Enough reasons for India to let to of this idea.
     
  20. Naren1987

    Naren1987 Regular Member

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    Said it before and I'll say it again, we have to go bankrupt to prosper again.
     
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  21. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    I think Jairam Ramesh meant the same when he said this is model of unsustainability.

    Keep borrowing, keep increasing debt, report growth & then use currency norms as toggling instrument to appreciate/devalue rupee to balance undertakings.
     

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