Impact of Fiscal/Current Account deficit on Indian economy
8:21:00 PM Posted by Devesh Prabhu
The main thing is that both fiscal deficit and current account deficit are differences between income/revenue and expenditure.
Fiscal deficit is the difference between the government’s total expenditures and its revenues (excluding money from borrowings).
Current account deficit is the difference between the revenue earned by a country from its trade activities and its expenditure due to imports.
Now that we’ve got the definitions out of the way, in a sense both of them deal with either the positives of the negatives (in terms of income/expenditure) that the country has. In India’s case, both are in negatives or we have high deficit. Too bluntly (or technically) put it we are in the red on the balance sheet.
There are many things that have led to this. An open economy, imports, manufacturing practices, rules and regulations, easiness of setting up a business, subsidies/favors, taxes (corporate), inflation, salaries, infusion of foreign capital and the proper use, et cetera…
When you open up an economy to the outside world, this leads to something called as innovation and brings in various methods and ways to circumvent the rules and regulations (i.e., cheating/evasion). Any common that comes into power would like its name to be remembered forever for the good things it does, and along the way it tries to do things with a different approach.
Now, you must wonder why after more than 60+ (65) years after independence from British rule we have not been able to become truly independent from our archaic rules and regulations that the British had setup. We have now become a true software powerhouse and in the coming years become a truly independent manufacturing powerhouse, but with the current colonialist and dynasty type of ruling where the government that comes into power, they try to get their loved ones and relatives into prominent positions to help them later out.
This leads to the Indian economy again going down as the deficit keeps on building up and there is a negative balance which needs to attain zero or rise to the positive or plus side of the balance sheet. Unless there is a proper overhaul of the current archaic rules and regulations and a serious and it the various amendments and or repeal of these rules and regulations the Indian economy will still be in tatters down the line.
The economy is struggling because of the deficit and it is being protected due to the reason that whatever income or surplus (if at all any) is being generated by the country goes into filling up the deficit that has been created over the past 60+ years. The situation now is that however much we are creating or producing is just not enough to fill that gap and the negativity or bad side effect is that we’re still creating more deficit year over year which still makes the deficit higher.
The government or we as the people have to look at ways to get things going in a way that the Japanese, Korean, and Chinese people have done. If you remember correctly, after the Hiroshima bombing Japan was devastated, but with hard work and determination they were able to turn themselves around and are now the world leaders in manufacturing of various products. The sheer volume of which they are able to maintain quality of their products at a lower rate and still beat out competitors is truly amazing.
Our country (India) needs an all-round look into how we do things on all aspects. There are many areas where we are lacking (if you ask me, I would say in everything). It is not just the simple things that we look to circumvent. Our dependence on technology has risen to such a point that we are now not able to live without it. When we buy things from a foreign country it essentially means that the money we earn is going to that country or it is flowing out of the country to simply put it.
Due to globalization and the three nations (Japanese, Korean, and Chinese) capacity to mass produce on an exceptionally high scale, our local manufacturers and producers are not able to keep up due to hindrances placed by our own elected leaders.
When we do not have inbuilt production or manufacturing, we depend on outside assistance for products. You have to understand that for manufacturing or production there is the need for raw materials and importing that is somewhat of a good thing. But our dependence should not be on importing the full finished product, but should be on importing only the raw materials and exporting the finished products.
When you have less income and your expenses are high that is when you get either fiscal deficit or a current account deficit and this leads to our economy going down irrespective of whatever steps we take to bring it back up.
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