The article cautions the government against high fiscal stimulus the government is planning in the coming times since the combined Center and State fiscal deficit has exceeded the household financial savings.
The combined Center and State fiscal deficit is currently close to 13% of the GDP. The total household financial savings in 2006-07 was 11.3%. Even if we assumed it increased to 12% in 2007-08, that is still lesser then the Center-State deficit. This is risky since the household financial savings are the only means for government and private sector borrowings and if that is lesser then there is virtually nothing left for the private sector. At such times, another fiscal stimulus, that government is talking about, would add to the damage.
India should remember that it is not US, still the biggest economy and leading currency. If we go all out for fiscal stimulus in future, it will deteriorate several critical parameters like external sector and rupee-stability. Thus government should think twice before fiscal commitments.
The article expresses concern over the huge fiscal deficit government has piled up in recent times and contemplates on the possible solutions. However, the author warns that any extra-ordinary thinking should not be treated as license to fiscal irresponsibility.
The total fiscal deficit Rs. 332,835 crores has raised concerns about how the government would go about financing this deficit. Following the agreement with RBI in 1997 to phase out ad-hoc treasury bills, bulk of govt fiscal deficit is financed through market borrowing. But even the gross market borrowing has already shot up by 41% then originally estimated. Any additional borrowing would increase the yield in government bonds since interest rates, if raised, could lead to damage in the economy, something the government would desperately try to avoid.
One possible solution could be to use the funds received by RBI under MSS (Market Stabilization Scheme) by intervening in the forex market where it issued bonds to mop up surplus liquidity in the form of dollars when there was huge inflow of the currency in the local market. These funds went to separate account and the interest cost was borne by the exchequer. However, transferring these funds to govt means surplus liquidity without generating demand. But there is a catch. Access to these funds would not add to public debt but increase the repayment burden as the proceeds are currently ring fenced.
Already our debt servicing costs is close to 100% of revenue receipts. So any more debt will add to huge cost in future. Thus, any extra-ordinary measure should first take into consideration the fiscal responsibility that govt carries.
The article talks about the recession effects on the love life of the people around the world with an example in China.
As today, the times are tough and everything that involves sleeping on the job can be dangerous. At these times, the leisure activities are more enticing given that there have been cutbacks in many jobs elsewhere. Even love is not alien. In a contest to prove the best mistress, a lady, after being eliminated, drove the businessman and her four competitors off the cliff to take the revenge. The women were to be judged on three parameters i.e. beauty, articulation and drinking prowess. Each of the five mistress cost the businessman 5k Yuan ($733) monthly and so he decided to “lay-off” four of them. However, the contest ended in a fatal incident.
The incident lightened the businessman by 580k Yuan ($84k as compensation to the parents of dead mistress), a wife (who divorced him after the incident) and other surviving mistresses. However, the man used his ingenuity by making money from selling the telecast rights of the incident. However, the incident proved that China’s flourishing “second woman settlements”, on which the ban was softened in boom years, is also affected by the receding economy.
No comments:
Post a Comment