fiscal deficits and social returns
Today’s ToI carries the regular coloumn of Swaminathan S Anklesaria Aiyar (Swaminomics) where the author refers to the report of the Commission on Growth and Economic Development headed by Nobel Laureate Michael Spence. The report checks the lessons from 13 countries that averaged 7% economic growth for more than 25 years (check the report HERE).
As per the report there are 12 things (called sins) which no nation should commit to avoid ruining its chances for robust sustained growth.
S A Aiyar takes these 12 sins and relates them to India (Check S A Aiyar’s article HERE)
Though I largely agree with S A Aiyar I do have other thoughts on sin # 3 (I acknowledge that these thoughts of mine are as a student of economics addressed to S A Aiyar, an authority on economics and anyone else who is willing to discuss). The sin # 3 says that "Reducing fiscal deficits because of short term macro-economic compulsions, by cutting infrastructure investment or other public spending that yields large social returns in the long run". Mr. Aiyar finds Indian governments (both state and central) guilty of this sin.
However, I think that Indian governments have been undertaking public spending from the start (i.e. India’s independence) and actually were never serious about reducing fiscal deficits before the Fiscal Responsibility became an act. However, in early days of independent India the spending did not give any perceptible desired results because of the poor economic condition that British left India with coupled with India’s romance with socialism (I dont intend to say that socialism is bad).
Over the years corruption permeated deep into India’s public service obviating any chance of long run social returns despite rising fiscal deficits owing to public expenditure. Plethora of schemes like PMRY, SJSR, DIR and other many investments (PSUs are a result of some of them), which cost the exchequer huge sums of monies and had the potential of uplifting the socio-economic backward sections of the population could not deliver because of corruption from the highest levels in government machinery to the last level in a village where the schemes were targetted.
Thus I believe corruption and social tolerance towards it are the main culprits that blocked all efforts targetted towards public spending with long run social returns in mind. I therefore blame not only the government (for allowing and abetting corruption and not for hesitating from public investment for fear of fiscal deficit) but also the Indian populace for tolerating it and accepting it as a way of life.
While we wait for a response to my thoughts, lets enjoy this fantastic video that (like this post) remembers the old times and wants to forget them:
