gifts: experts point to a risk for the economy if gifts are distributed without any control


Pointing to the risk that misdirected giveaways could have on the health of the economy, experts stressed the need to clearly distinguish them from social spending.

The giveaway debate has turned into a bitter political tussle between the ruling BJP and opposition parties like DMK and AAP. Prime Minister Modi’s recent “revadi” against political parties handing out gifts has sparked a political storm.

“Most gifts (except in times of extreme emergency like COVID) that are often misdirected are a tax error with significant adverse consequences. And these exist in most states and under most forms of government. “, said ICRIER President Pramod Bhasin.

“If there was a way to limit them within each state and also at the central level, it would be a welcome decision, but it is also up to the elected official to decide,” he added.

Echoing similar views, the director of the Institute for Industrial Development Studies (ISID), Nagesh Kumar, said state governments must be responsible in terms of budget management unless they do not wish to find themselves in an unbearable situation.

“Basically, freebies from state governments can wreak havoc on state finances. As the case of Sri Lanka demonstrated, fiscal profligacy always leads to disaster,” Kumar said. BR Ambedkar School of Economics (BASE) Vice Chancellor NR Bhanumurthy said any policy intervention that does not ensure a net increase in output and productivity in the medium to long term can be treated as a “gratuitous “.

“…it is important to define what a gratuity is and how it differs from social spending. Such (free) policies, if introduced, could only aggravate the already aggravated public debt situation in many states and create perverse incentives as well as intergenerational friction,” Bhanumurthy said.

Regarding India’s current macroeconomic situation, Bhasin said that amid fears of recession around the world, India seems relatively better positioned, calmer and much more stable.

“Of course, India faces its own share of downside risks. With soaring energy prices and expectations of weaker GDP growth at 6.1% (for 2023 according to the IMF ), we will of course see an impact,” he said, adding that Compared to the rest of the world, India is in a much better position to weather this storm. According to Bhasin, there has also been an outflow of investment from India, but on the other hand, the Indian rupee has only moderately depreciated against other G20 countries, sometimes by half against the Europe and UK.

Noting that India’s foreign exchange reserves are more than sufficient in terms of a sound macroeconomic outlook, he said: “In fact, India has done remarkably well to weather these times at a time when we would be considered very vulnerable. to global shocks”.

Bhanumurthy opined that India is absolutely in a better position than most advanced economies and has no likelihood of falling into recession.

“Our outlook suggests that India should continue to be one of the fastest growing major economies with growth of between 6.5 and 7% for the current year,” he said. , adding that in terms of downside risks, there was clearly no domestic factor. He said only external factors could put downward pressure on the Indian economy.

“However, domestic fundamentals are strong enough to weather such external risks,” Bhanumurthy said.

According to Kumar, with its robust macroeconomic fundamentals, accelerating industrial growth (IIP) in recent months and prospects of a good to normal monsoon, India’s economy is expected to grow by 7-7.5% in 2022. -23, which will make it the fastest growing major economy in the world.

“The main risks to the growth outlook are posed by the possible volatility of oil prices in the context of the war between Ukraine and Russia, and a further worsening of the pandemic requiring lockdowns,” he said. declared.

Kumar said another headwind for India resulted from interest rate tightening in the United States as the Fed rolled back the easy money policy quite aggressively.

“Still, I don’t think a repeat of the type of situation of 2013-14 (taper-tantrum) is likely, given the large foreign exchange reserves of around $570 billion,” he said.

(With PTI inputs)

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