This fact may come as a shock to many Indians – we may take pride in being the ‘fastest growing economy in the world’ – but truth is if we weigh our economic parameters with those of other ’emerging markets and middle level economies’ we are about ROCK BOTTOM.
We are plagued with the most basic of problems – “aam daani athani, kharcha rupaiya”. (Earning is 50 paisa, and have spent Re 1). According to IMF data, the revenue of the Indian Govt is 19.5% of GDP while the spending is 26.7% of GDP leading to a deficit of balance of -7.2% of GDP. These are the figures for 2014 including all states.
What is the figure like for others ? The average of other emerging and developing economies is -1.9%.
For just Asian countries also, it is -2.1%, still a much better position than for India.
It is not just that our spending is more, our earning as a % of our GDP is pretty bad too. Among the long list of countries that have higher earnings in proportion to their GDP are even unknown entities like – Benin, Burkina, Faso and known ones like Nepal, Kenya, Mali, Papua New Guinea and Myanmar.
Measures That Can Help
The bitter truth that we must face is we do not believe in paying taxes
India’s tax revenue as a % of our GDP is 10.7% – even lower than Nepal ( and we all know the state of Nepal’s economy and that a large number of Nepalis have to migrate to India to find work) which is 13.9%. It is indeed time to remove exemptions, expand the service tax net, check evasion and improve tax administration. And if Govt. has the teeth – get goods and services taxed.
There are lots of indications that time is running out for India. The last year we were really a growing economy and had investments worth cheering about was in 2009 – 2010.
The day our budget session began, our Bombay Stock Exchange (BSE) came crashing down after the global rating agency S&P said in its latest report that India’s low income levels and weak fiscals and debt indicators constrain the country’s credit policy. This report caused a 318 points crash which later firmed up to 256. Consumer durables, banks,FMCG and oil and gas stocks stocks were affected. The report stresses that Meeting reforms expectations will be key to improving investment grade rating for India.
We cannot even console ourselves that this crash was momentary because it now is apparent that our share markets were on a unjustified high when there was actually nothing tangible to cheer about. A spate of downgrades in earnings estimates of companies in the last 3 months suggest that run ups in stock markets have been a bit excessive. Analysts have lowered earnings per share (EPS) of more than 60% of the top 360 companies for the coming year.
Among the major causes for India lagging in development and investment both is the quality of our infrastructure. According to IMF estimates again if the best are ranked as 5 and the worst as 1, India rates 2.88 far lagging behind countries like Vietnam and Thailand – not to mention China.
Govt will have to bite the bullet and take many definitive and seemingly harsh measures. Disinvestment in PSUs will have to happen without depending on foreign investors to come in. According to Parekh this can release “lakhs of crores of Rupees” but will we show the political power or will unions again weaken the Govt resolve?
There may not be additional funds for highly publicized progams like ‘Swachcha Bharat Abhiyan’ or ’employment guarantee schemes’ that were popular among rural Indians.
Yet, growth has to be inclusive and our social parameters must improve.
It is going to be a tight rope walk. Is Jaitley up to it?