Thursday, March 12, 2015
GDP growth and social spending are beginning to diverge again... Since 2011-12, fiscal consolidation has moved apace
- Lack of adequate health and education opportunities for the young portends political instability risks.
- If the government misses its revenue target, infrastructure spending will be sacrificed for fiscal consolidation.
- Land acquisition problems will deter private infrastructure investment, even if national laws are amended.
India ranked 135 of 187 countries -- lowest among the BRICS -- on the 2013 Human Development Index. Public spending in areas such as education and health is low, averaging 6.8% of GDP since the 2008 financial crisis, compared with the OECD ratio of 22% in 2014.
This trend will not change in 2015-16. Prime Minister Narendra Modi's government is prioritising infrastructure spending and fiscal consolidation. Besides tax forbearance and opening new sectors to foreign participation, the government will seek to generate private sector investment by further cutting subsidies, whose cost has averaged 2.1% of GDP since 2009.
In the short term, lack of human development will belie Modi's rhetoric about fostering inclusive growth; longer term, this will impede India's ability to harness the economic benefit of the demographic changes that will make it one of the youngest countries in the world by 2020.
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