February 2020 \ News \ COLUMN: ECONOMY

After witnessing a quarterly slowdown during first ...

By S. Kumar

Higher public spending can certainly push up demand in the near term. Moreover it can be urged that public expenditure on infrastructure has positive externalizes and raises growth and investment. The challenges to the government as well Finance Minister in an economy that is on the brink of a long-drawn showdown are many. How to trade between the short and long term, and how to achieve long term goals through short term changes are all part of the routine work of the government. Ministries responsible for Railways, Roads and Power would argue for higher spending similarly, social sector spending on housing, cooking gas, employment guarantee, pension, health, education, farm income support and many other scheme which has social benefits and to be financed government either should tax more or borrow. In other words, while at first blush it may seem like a good idea to borrow more, in the long term it may not be. It may lead to lower growth of output and jobs. Credit rating of India’s sovereign debt may fall and foreign commercial borrowing by Indian companies may become more expensive increasing dollar interest payment outflows. There may be inflationary pressure. Finally, in an attempt to keep the fiscal deficit in control for the higher budgeted expenditure, the government could consider the option of increasing tax revenue. A coherent direction for the economy is important. (Figures mentioned above may differ slightly due to different opinions by experts).

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