Thursday, July 10, 2014

Welfare v/s Austerity - India's issue

Many people including some experts, attribute Indian growth of about 5% to the welfare schemes of the UPA government. Their honest belief is that UPA government's welfare schemes helped alleviate some of the harshness of the global economic slowdown. They also point to Chinese stimulus as something to emulate. Thereby they believe Modi's promised subsidy rationalisation (euphemism for reducing welfare) is not a good idea. I disagree. 

First, there is a difference between global issues and Indian condition. Global economic engines have stalled, while India's remain switched off for want of fuel (investment and clarity in policy making). 

Second, fixing the engines requires fuel which is currently diverted to subsidies. Thus, if there were an ideal subsidy level, current burden is most likely higher than this level. Therefore, naturally, to bring sanity back this will have to be rolled back. 

Finally, what is required is to push-start the engines is additional effort which will eat away more subsidy than generally required. Thus, push-starting this engine will cause subsidy to dip below this ideal levels. The blame for this does not lie with present government but with UPA which killed the engine long time ago.

Fix the engines and Indian engines can hum along for quite a while creating economic growth and surplus necessary to smoothen the income disparity in later years. Acche din aane wale hain!