Economic prosperity does not advocate stimulus of public spending

The monstrous theory to increase only the public spending to speed up the growth of economic front as professed by a section of  economist is not that encouraging and viable proposition considering today’s scenario of India. If you see the past history of many countries, namely Russia, China and Brazil whoever have resorted and embraced upon this populist method has failed miserably.  In fact, all these countries experienced a full-throttle experiment to increase spending only to land in a languor. The history has been dwelling on the economic front expansively to show that the emerging country’s barring China, average growth as 2.5% presently, which was more than 7% in 2010 when the public spending spree was at the top. This growth of 2.5% is the lowest one what they had experienced in the past forty years. The leaders of these emerging countries are now shying away from advocating the theory of public spending.  This type of campaign of more public spending was vehemently pushed forward at the end of the year 2008 when western economies and demand curve were passing through a vicious cycle of recession. To offset the recession, the theory of stimulating the public spending as advocated by emerging economies did not yield much desired results at a subsequent stage.  Among the G20, if you consider the major emerging and developed economies, they spent a sum equal to 4.2% of the gross domestic product; these figures are taken away from the published data of the International Labor Organization. During those days, emerging nations could afford to spend more as compared to the rich countries in the world. Afterwards, the economic scenario got changed and these emerging nations went into the recessionary trend because of the fall in demand worldwide, of course, with little public debt, huge pool of foreign currency reserves and budget surplus.  

The believers of public spending got elated in 2011 and teamed up with ILO and European Union to prove the truth of this theory and convinced the world that a trajectory growth of Asia’s economy is because of widespread stimulus of spending.

As for China, they went for a big scale of spending to the extent of 12% of GDP, but since 2010, its growth rate started sliding down and almost touched a figure of 7%. They now suffer a wide scale of financial crunch. The recessionary trend has completely engulfed the other countries say Brazil, Russia, who is spending a whooping 10%, of course, phase-wise of GDP.   

The emerging nations advocated for more public spending to speed up the growth, but ultimately, now in a financial crunch and disastrous.  They are in a mess in their budgets, which are red and the productivity has touched a significantly lower benchmark.  These poor economic results of the emerging nations force IMF to predict their GDP growth at 4% and below for the rest of the decade.

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As for India, there was never a school of thoughts  to advocate for a big spending mission.  The combined government deficit is 6.6% of GDP, which is one of the highest in the emerging world. Further, the government of India’s debt when compared to the total percentage of the economy, it stands at a higher level of 60% and this figure is really a panicky one considering the meager per capita income of below 2000 dollar. 

More public spending supporting to continue the reforms is easier said than done. It is difficult to implement both the issues simultaneously. We have somewhat experienced this syndrome from the period of 1990 and the decade thereafter.  By the end of this period, most of the emerging nations were starved, there was inadequate money circulation to manage the anticipated growth. The lenders were breathing on their neck.  Ultimately, some of them  were compelled to open up the path of big reforms, tried to clear the burden of bad debts and pushed the companies to be more productive and efficient to sustain in the market.

 India is  more prone to accept the suggestion of Chinese Prime Minister Li Kegiang, who told that more public spending does not necessarily guarantee growth, but create problems only. The same is also echoed through the voice of the Mexican Central Bank President. More public spending will inevitably lead to higher deficits and inflation, which today we are passing through. The incremental value in public spending without adequate generation of revenues, resources and infrastructure will not be a fruitful exercise for the country’s growth.