Analysis

Fiscal Deficit in the Indian Economy

Redtapism is one of the most important reasons for the delays in project implementation in India. The procedural delays in implementing several infrastructural projects led to cost escalations. There has been a heavy competition among several political parties for power hence, they indulge in populist schemes such as loan waiver for farmers, pay hike for the government employees, subsidies for higher education, less water cess for farmers, and many other subsidised schemes. Such schemes have been contributing to government's growing expenditure.
 
At present, the fiscal deficit is around Rupees. 4,00000 crore.
 
The huge size of ministries and it's expenditure, tax evasion and fraud account details of production or out put by many entrepreneurs and working class, etc have also been contributing to the growing fiscal deficit.
 
India as a welfare state:
 
Soon after independence, the expenditure on social and economic infrastructure was huge. But the revenue was very low due to lack of economic development at that time. Tax cuts, subsidies, loan waivers, and many other support schemes, etc were the order of the day. The expenditure on defence, salaries of public sector units employees, irrigation projects, power generation projects, interest payments, free education, free medication, free housing schemes, etc was very high but the revenue was not on expected lines. The public sector units losses added further burden for the successive governments.
 
Many welfare schemes for the poor are being implemented to uplift them and there by to reach the constitutional goals of transforming the Indian society in to an egalitarian society.
 
Economic reforms:
 
In the year 1991, the government of India liberalised it's economy to bring it on the right track. Many loss making public sector units were privatised. But there has been opposition from the unions of the employees of some loss making public sector units for privatisation. The improper management of public sector units is responsible for their decay. On fiscal front too the government brought several reforms to effectively collect the taxes. The government has also been encouraging entrepreneurs from India and abroad to start their production units with limited conditions. These measures have reduced burden on government's growing expenditure.
 
Unnecessary expenditure:
 
The successive budgets indicate that the expenditure on both external and internal security has been raising. The lack of political will to resolve the out standing disputes with the neighbouring countries is one of the reasons. For instance, the Kashmir issue has not been resolved for 63 years. The fiscal deficit grows as long as the government does not find solutions to internal and external strife.
 
Conclusion:
 
Fiscal deficit would be met with internal and external borrowing or by printing the currency notes. External borrowing leads to debt trap. Internal borrowing would be a burden of interest payments. Finally, printing of currency notes will lead to inflation.
 
Investments are inevitable for economic development. The government needs to be extra cautious in spending and also in collecting taxes, and improving the performance of it's goods and services producing units.
 
The judicious mix of expenditure and revenue is the need of the hour. Other wise the country would be debt ridden. 
   

06-Oct-2010

More by :  Tirumala Prasad

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