A graphic illustration of the perilous state of Indian Economy
Some superb graphs courtesy this post by John Samuel Raja on the perilous state of India’s finances, following the excerpts:
What makes it worse for the government is the inelasticity on both the revenue and expenditure sides, which limits its options.
…The government is living way beyond its means. As much as Rs137.6 of this Rs157.6 is going towards meeting running expenses, as opposed to creating assets that deliver benefits in later years. And just five items—interest payments, defence spending, subsidies, salaries and pensions—account for Rs110.
…The biggest outgo on the expenditure side, of Rs51.4, is interest payments to service loans and to buy back past debt. Since most of it is being used to fund running expenses, in inter-generational terms, it is akin to making the future generation pay for current expenses. The government can’t retire this debt because, well, it can’t—it doesn’t have the money to do so and that is what balances the books today. If a credit card user were to be in this situation, his condition would be described as being in a debt trap.…The only expenditure item where it can squeeze out something significant is subsidies, which amounted to Rs21.9 in 2013-14.
… The government needs big chunks of funding to channel into two areas that touch lives of people and that can have a multiplier effect—spending on social services (like education and health) and economic services (like agriculture, power and transport). And this is where the real picture of our misplaced priorities emerge. In 2013-14, the government spent a mere Rs2.3 on each of those categories.
It is very clear that there is only one way to come out of this debt trap. We should reduce the expenditure. Debt servicing is consequential hence no chance. Defense expenses can be reduced – more than 50% of these expenses are directed to handle Pakistan and 30% could be due to China. Rest are against Bangladesh, Sri Lanka and others. Hence it is imperative we should actively negotiate with Pakistan and China to reduce the mutual hostility. The fallacy of endless subsidies has already been understood by all. It only needs political will from all the political parties to reduce these subsidies gradually. This is the right time to do it as the next election to Lok Sabha is far away. Salaries for Govt employees should be frozen at the present level for the next five years with a promise of fresh pay commission in 2018. Pensions – the amount, is hoped, will gradually reduce with the new pension policy of the Govt. Well let us hope the MODI Govt will see the path clearly and move on.
Well said, Nagarajan..I agree..although some of the things (e.g. reducing hostilities w/ China and Pakistan; freezing salaries) might need very strong political will and may not be realistic in the short-term..
Apart from freezing the salaries of the Govt employees,Salaries and all perks of the MLAs and the MPs should be done away with since almost all of them are crorepattis and should be willing to do an honorary job.