Be it the Central Government of India or the State Governments, they are not counted among the most expensive governments in the world. Governments in many regions, such as most rich countries, Latin American countries, and countries in Central and Eastern Europe, Central and West Asia, have been spending more in relation to their country’s gross domestic product (GDP).
But Indian governments are not free-spenders. According to the Global Economic Situation Report of the International Monetary Fund (IMF), Indian governments have been spending an amount equal to 28 percent of the GDP at the all-India level. This is higher than the proportion spent by many countries in South-East Asia and Sub-Saharan Africa. India spends much more in terms of GDP than its neighbors like Sri Lanka and Bangladesh.
But what has been achieved from this expenditure?
For example, Bangladesh’s government expenditure is only half that of India (equivalent to 14.5 per cent of GDP), but the average maximum age of people and the length of schooling there are better than those of India. It has also made the per capita income figure almost equal to this figure of India.
Governments of South-Asian countries such as Malaysia, Thailand, and Vietnam are also making significant improvements in the health and education sectors despite spending low as a proportion of their GDP. These and many other countries also have low fiscal deficits and low government debt – India’s is 83.2 percent, Bangladesh’s is half that and Vietnam’s is even less.
It cannot also be said that India has improved its infrastructure by spending more. How can this be explained?
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One answer could be that the data can be misleading. A higher percentage of low GDP per capita may result in lower absolute spending per capita than a lower percentage of high GDP per capita.
Therefore, India may have a high ratio of government expenditure to GDP but may spend less per capita than the high-income countries of South-East Asia. Therefore it may perform poorly in the fields of health and education. But Bangladesh is an exception in the sense that it is performing better despite spending less per capita.
But it is also true that wherever governments have provided various types of services like schools, health care etc., they are often not up to standard.
Therefore, it is important to pay attention to Prime Minister Narendra Modi’s statement that government programs should not be government-centric but people-centric, that is, they should be corruption-free and give better results. Recently, in the matter of G-20 summit, the Prime Minister talked about adopting a human-centric approach instead of a GDP-centric approach.
He can be given credit for the fact that he is actually working on what he is talking about – providing basic amenities to the public – electricity and tap water to all. Programs ranging from providing cooking gas to women at subsidized rates, building houses and toilets with government help, free food grains and medical insurance, and providing cash assistance to farmers are being run. Apart from these, he has increased government investment especially in transport infrastructure. For the future, he has launched a comprehensive incentive program to promote investment in manufacturing sectors.
It is too early to say anything about the social and economic consequences of such an initiative. Part of the reason for this lies in the official statistical system (no census, no consumption data), and recent measures have not yet been fully implemented.
But one reason is clearly visible – the share of government revenue (Centre and states) in GDP has been falling for the last several years, while the share of expenditure in GDP has increased by about one percentage point today compared to a decade ago. As a result, the deficit and government debt have increased, for which the Covid crisis is undoubtedly partly responsible.
If the deficit and debt are to be reduced to the level of similar countries without cutting expenditure, then the easiest way would be to increase the pace of economic growth, which will increase the per capita GDP ratio.
And no matter how much the government wants to be people-centric, more money for social investment and public welfare packages will be achieved only by focusing on spending and economic growth.
South-East Asian countries benefited because they did both and are in a better condition today. Economic growth matters. Governments should not only be more people-centric, they should also be more GDP-centric.
(By special arrangement with Business Standard)
(Editing: Shiv Pandey)
(Click here to read this article in English.)
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