Freebies And India’s Fiscal Deficit
India has the world's fastest-growing economy, but its debt is rising. In the quarter from July to September of the current fiscal year, the nation's debt rose to USD 2.47 trillion (Rs 205 lakh crore), according to the IMF. This compares to the January to March quarter of the previous fiscal year.
The debt was estimated at 200 lakh crore. The central government owed 161.1 lakh crore in the September quarter, compared to 150.4 lakh crore in March. The International Monetary Fund warned India about its rising debt. This report covers fiscal expenditures, specifically the fiscal deficit, which is the difference between government earnings and expenditures. The government's budget deficit is 9.25 lakh crore, or 4.51 per cent of debt, according to reports.
India's total debt could soon exceed 100 per cent of its GDP, according to the IMF. Given these circumstances, India may struggle to repay the loan over time. The Central Government disagrees with the IMF report. The government considers government debt risk low because most of it is denominated in the rupee and India's robust economy, the fifth largest in the world with a GDP of USD 3.35 trillion.
This is because the rupee represents most of the debt. It is expected to become the third-largest economy by 2028. Debt ratios are expected to be lower than in larger economies. Japan's debt ratio is 255 per cent of GDP, while Greece, Singapore, Italy, and the US are 167, 143, and 123, respectively.
Corporate bonds made up 21.52 per cent of total debt in the second quarter of the current fiscal year or 44 lakh crore rupees. Loans can be obtained internally or externally, including from foreign countries. Internal debt includes indirect debt, public auction debt, corporate bonds, Reserve Bank special shares, indemnity bonds, and other borrowings. However, "external debt" refers to funds borrowed from foreign creditors like international financial institutions and governments.
Additional nations must help the government finance welfare programs and infrastructure development. During the Corona pandemic, the government distributed 220 crore vaccine doses and complimentary rations. Even though these items were given to people for free, the government-funded their purchase.
India had USD 98.2 billion in foreign debt in March 1999. It reached USD 446.3 billion in March 2014 from USD 112.5 billion in March 2004. After that, it reached USD 557.4 billion in June 2019 and stayed there until March 2022. It was significant at USD 620.7 billion.
Government income and expenditures determine debt levels. If government expenditures exceed income, it must borrow money, which increases the monetary deficit immediately.
The "fiscal deficit" occurs when government borrowing and spending, including revenue schemes and subsidies, do not generate revenue. Closer inspection shows that the budget has had a revenue deficit since 1980. Revadi, the practice of giving freebies, originated in South India and has spread nationwide, increasing the public deficit.
Nearly every major Indian political party provides complimentary benefits. The current approach of governments accumulating significant debt to allocate Revadi burdens us and future generations, who will have to repay it. The budget allocates money for loan interest.
The rising US dollar has also contributed to this debt. Dollars have been around Rs 83 for a long time. Unfortunately, governments are relying on debt and prioritizing various initiatives over economic growth and employment. This indicates a bad situation for the nation.
When employment and production stagnate and income inequality persists, borrowing money becomes necessary. Oxfam International's "Survival of the Richest" report predicts 166 Indian billionaires by 2022, up from 102 in 2020. The number of billionaires increased significantly from nine in 2000. The top 5 per cent of India's population owns over 60 per cent of its wealth.
Even though the country has been self-sufficient in food grains for 50 years, two-thirds of the population still receives free grains from the government. A major paradox exists here. Providing subsidies and free programs for the public has driven several states to bankruptcy due to the Corona epidemic. Due to the government's increased financial strain, health, education, and infrastructure budgets will be cut.
In 2022, the International Data Corporation (IDC) reported that 74 per cent of businesses lack skills. Indian businesses lack skilled workers, and a large number of educated people are unemployed. India ranks 132nd out of 191 countries on the UNDP Human Development Index, which is concerning.
According to "India's Graduate Skill Index: 2023," educated Indians have an employability rate of less than 45 per cent. Also, only 4.69 per cent of the workforce has used vocational training. These statistics show a skills gap in India, which is especially concerning given its expected 25 per cent contribution to the global workforce.
The government must recognize that specific knowledge and skills can improve this substantial human capital. The poor and economically disadvantaged strain a nation's finances, while healthy, educated, and self-sufficient people benefit it. The government and all political parties must develop and efficiently manage society.
Political parties could eliminate the need for complementary programs if they developed superior and efficient economic policies and successfully implemented them for the intended beneficiaries. For social progress and individual prosperity, resources should be allocated to job creation, skill training, and infrastructure improvement.
