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The post CoVID period has witnessed a turmoil in the global economy. Initially, the desire to provide the required thrust, to increase industrial production, pushed the central banks to decrease the interest rates. Soaring inflation rates came in handy. This forced the central banks to have a relook at their approach, and gradually they started increasing the interest rates. At this point of time, when the article is penned down, almost all the central banks of major economies have stopped hiking their interest rate any further, including the US Fed. This resulted in providing a required flexibility to the investors to invest in emerging economies, like India. The results of which were experienced in the Dalal Street of Bombay, when BSE’s Sensex touched the milestone mark of 70,000.
With the unexpected increase in the GDP growth of Quarter 2, FE 24 (7.6%), inflation rates in or around the tolerable band of 2-6, robust direct tax collection (23% up in April-November period), GST touching a monthly mark of ₹1.7 lakh crores and increasing interest of investors in Indian market, Government may take a sigh of relief for the moment. But it must not let its guard down. A slight mismanagement of even a single economic factor can present us with a plethora of challenges. Sri Lanka and Pakistan are the perfect examples of this ‘Najar hati, durghatna ghati’ idiom.
This brings us to another economic indicator, which demands an immediate consideration- Fiscal burden. Both the Central and the State governments have launched or are launching several welfare schemes, to improve the standard of public life. But how much these schemes are effective, sustainable and economically viable, one needs to ask. For instance, despite the fact that heavy use of fertilizers have a negative impact on the environmental health, human health and the economic health of the state, the government continues to allocate a large chunk of its budget in providing fertilizer subsidies. The total subsidies given by the government- in food, fertilizer and fuel, have been increased from ₹2,28,341 crore to ₹5,30,959 crore, between 2019-20 and 2022-23.
The same is the case with several state governments and different political parties, where to woo the electoral voters, they are announcing blind number of welfare schemes, with little or no recourse to the health of the state’s economic stability. In point, the recently concluded assembly elections of five states are the examples, where both BJP and Congress have announced a plethora of such schemes.
With the dangers of increasing fiscal deficit, and the possibility of downgrading of sovereign ratings by agencies, the rising questions over fiscal stability stare at us, like the Sword of Damocles. Governments (both central and state) need to adopt a reconciliatory approach to maintain a required balance between social welfare schemes and fiscal stability.
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.