Day 28 – Q 5.Isn’t fiscal deficit bad for an economy? Don’t you think social sector schemes burden the exchequer? Critically analyse.
5. Isn’t fiscal deficit bad for an economy? Don’t you think social sector schemes burden the exchequer? Critically analyse.
क्या अर्थव्यवस्था के लिए राजकोषीय घाटा खराब नहीं है? क्या आपको नहीं लगता कि सामाजिक क्षेत्र की योजनाएं राजकोष को बोझ देती हैं? समालोचनात्मक विश्लेषण करें।
Synopsis:
Fiscal Deficit: Fiscal Deficit shows that total debt generated by the government to finance the total budget expenditure after exhausting all options for financing its expenditure. Fiscal Deficit is justified as long as the expenditures are being incurred to finance activities leading to creation of national asset.
High Fiscal deficits become a matter of worry, for, if incurred year after year, they cumulatively create a huge debt for the government.
Let’s see how it is bad for economy:
Fallouts on economy:
Debt Trap: Government tries to finance the fiscal deficit by borrowings from both internal and external financial organisations, so annually governments need to repay interest on those borrowings or repay the principal amount what they have borrowed earlier.
Inflation: Excess expenditure of government on social sector leads to increase in money supply in an economy. These create pressure on goods and services results in high inflation.
Foreign Dependence: Government borrowings from foreign organisations and institutions make our economy and policies more dependent on their decisions. These made government restricts to take independent decisions on our foreign policies.
Social sector scheme and burden on government:
- In practice, the effect of fiscal deficit on the economy depends on the expenditure pattern of government as well as the Business Cycle. For instance, running a deficit for pandering to populist demands is detrimental, while in periods of slowdown deficits are warranted to revive demand. Further, fiscal deficit when used to finance capital expenditure is beneficial in long run.
- When the government’s Fiscal Deficit is large, it implies that government has to borrow heavily. This means that the demand for loans will rise in the market, causing interest rates to go up.
- In effect Debt servicing alone consumes one-third of government’s earnings, followed by subsidies, pension, and defence expenditure. Further, the expenditure as a percent of GDP on core sectors such as health and education is well below other developing countries. Also, empirical evidence suggests that investing in such sectors in-fact boost national income.
- Social sector schemes may be short term burden, however in a long run it is an asset for an economy. For Example: A govt is providing scholarship or internship for graduates. After Completion of graduate, He/ She will create new employments, pay tax, remittance and many more. It is not universal truth that social sector schemes will be an asset.
- Another example: Farmer loan waiver is against the interest of genuine farmers and nation interest in long run.
- As the public debts are social sector schemes are inviting criticism for burdening the exchequer. This notion is misplaced.
Conclusion:
Now we can conclude that social sector schemes are not burden if it proper utilised in national interest. However, we need to take the recent experiences of Greece and a few other European countries shows that cumulative high fiscal deficits can lead countries to bankruptcy of the governments.
Best answer: Suraj singh
