States are increasingly borrowing to finance subsidies. This reduces fiscal space for capital and other developmental expenditure, compromising long-term growth.
State govt provides an annual average subsidy of Rs 52,000 per pump set. And while rising subsidy costs are straining state finances, cutting back on these carries political risks.
Most Indians are spending more on essential items than last year while earning either less or the same amount. No wonder they turn to 'buy now, pay later' schemes.
Subsidies are here to stay. Worryingly, subsidy expenditure will likely increase as Indian politicians try to meet a wider set of aspirations through more diverse freebies.
The Narendra Modi government is looking at ways to check states’ spending on handouts like free electricity and rations. The first step is to tighten the noose on state borrowings.
Budget deficit target is doable, increased capex is a positive & it takes a realistic, if political, view of disinvestment. But protectionism, rising debts, slashed subsidies are problems.
Advice comes at a time when India accounts for a 5th of global generic drug supply & 40% of generics used in US. However, this strength in finished formulations relies on imported ingredients.
It’s easy to understand why the government can’t speak the hard truth. When this war ends, as all wars do, India’s interests will lie with both the winner and the loser.
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