The debate (!) has gone on ad nauseum. For the sake of the aye-sayers and naysayers, B&E gives a final spin
There was more bad news for the exchequer this June besides skyrocketing inflation, which almost touched the 12% mark (11.63%). At first, it was the Farmer Loan Waiver Scheme, which became operative on June 30, putting a burden of Rs. 716.80 billion on the exchequer. Then came a recommendation by the government to form a committee of bureaucrats, which would look after the recommendation of increasing the salary of government employees by as much as 40%. The total burden of the two acts would put an additional burden of Rs. 1,147.8 billion on the exchequer. And it’s all because of the fact that the government can now see an election round the corner and hence is busy squandering money in an attempt to improve its brand image.
Well, it’s nothing new (in fact, even saying this fact sounds quite stupid), as when elections come closer, governments start spending their ‘populist belly button’ more. The fate of the loan waiver scheme implemented by Devi Lal in 1990 rewrote bankruptcy models. The negative impact of the scheme was so strong that the country is still trying to recover from the fiscal gap formed by it. Dharmakriti Joshi, Principal Economist, CRISIL, added to what we already knew, “The [current] loan waiver would not only increase the inflation, it would also put a huge fiscal stress on the country.” Moral hazard and increase in default rate will be the consequences, news of some of which has already started to come up. Many experts also confirm that the clauses in the scheme actually stop many small and marginal farmers from taking benefits, which itself kills the main objective of the scheme. Besides this, infrastructural bottlenecks and no clarity on the clauses in the scheme give ample opportunities for corruption to crop up in the process. NREGA is a living example.
There was more bad news for the exchequer this June besides skyrocketing inflation, which almost touched the 12% mark (11.63%). At first, it was the Farmer Loan Waiver Scheme, which became operative on June 30, putting a burden of Rs. 716.80 billion on the exchequer. Then came a recommendation by the government to form a committee of bureaucrats, which would look after the recommendation of increasing the salary of government employees by as much as 40%. The total burden of the two acts would put an additional burden of Rs. 1,147.8 billion on the exchequer. And it’s all because of the fact that the government can now see an election round the corner and hence is busy squandering money in an attempt to improve its brand image.
Well, it’s nothing new (in fact, even saying this fact sounds quite stupid), as when elections come closer, governments start spending their ‘populist belly button’ more. The fate of the loan waiver scheme implemented by Devi Lal in 1990 rewrote bankruptcy models. The negative impact of the scheme was so strong that the country is still trying to recover from the fiscal gap formed by it. Dharmakriti Joshi, Principal Economist, CRISIL, added to what we already knew, “The [current] loan waiver would not only increase the inflation, it would also put a huge fiscal stress on the country.” Moral hazard and increase in default rate will be the consequences, news of some of which has already started to come up. Many experts also confirm that the clauses in the scheme actually stop many small and marginal farmers from taking benefits, which itself kills the main objective of the scheme. Besides this, infrastructural bottlenecks and no clarity on the clauses in the scheme give ample opportunities for corruption to crop up in the process. NREGA is a living example.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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