{"id":130251,"date":"2022-11-18T06:36:53","date_gmt":"2022-11-18T06:36:53","guid":{"rendered":"https:\/\/fin2me.com\/?p=130251"},"modified":"2022-11-18T06:36:53","modified_gmt":"2022-11-18T06:36:53","slug":"is-indias-government-too-bloated","status":"publish","type":"post","link":"https:\/\/fin2me.com\/business\/is-indias-government-too-bloated\/","title":{"rendered":"Is India’s Government Too Bloated?"},"content":{"rendered":"

Perhaps the finance ministry or NITI Aayog could take a detailed look at what governments actually deliver and at what cost; how their services can be improved and expanded where necessary; how much money can be saved through doing things differently; and how many things the government does which it can safely leave to the private sector, argues T N Ninan.<\/strong><\/p>\n

Liz Truss, the unlamented former British prime minister, has given the ‘low taxes, high growth’ framework a bad name.<\/p>\n

Deservedly so, because there is in fact no clear relationship between income-tax rates and economic growth.<\/p>\n

In general, the advanced economies have higher tax rates than the rising economies of East Asia, where tax rates peak around the 35 per cent level.<\/p>\n

Britain’s peak income-tax rate of 45 per cent is not very different from the average for the euro area, somewhat higher than in the US and lower than in Japan.<\/p>\n

Among the advanced economies (leaving out places like Singapore), only Canada has a markedly lower peak rate (33 per cent).<\/p>\n

The higher-income countries in East Asia (South Korea and Taiwan) have peak rates closer to the euro average, with very different economic growth rates.<\/p>\n

If there is any noticeable trend, it is for the wealthier economies to be more highly taxed because that pays for ambitious welfare programmes.<\/p>\n

Rising economies without comparable social-safety nets tend therefore to have smaller government expenditure in relation to GDP.<\/p>\n

This shows up in the successful middle-income economies of East Asia, which tend to have smaller governments (smaller budgets) and lower levels of deficit than other economies, when seen in relation to GDP.<\/p>\n

Even super-successful South Korea has government expenditure that is equal to only a quarter of GDP (for dirigiste France it is over 60 per cent), and a deficit of just 2.8 per cent.<\/p>\n

Malaysia, Thailand, the Philippines, and Vietnam reflect broadly the South Korean example.<\/p>\n

In comparison, India’s governments are much bigger, accounting for about a third of GDP, with much higher deficits (about 10 per cent for the Centre and states combined).<\/p>\n

It’s no different with public debt: South Korea’s debt is less than half its GDP, whereas for India it is over 85 per cent.<\/p>\n

Taiwan’s government is even smaller than South Korea’s, in relation to its GDP, with remarkably low debt.<\/p>\n

This might suggest that it is the size of government rather than the peak tax rate that is material — which fits neatly with the long-discarded Thatcher-Reagan argument for smaller governments.<\/p>\n

But would Britain or any other advanced country settle for smaller welfare budgets (say, a shrunken health service) in exchange for lower taxes and a smaller government?<\/p>\n

It is certainly telling that both the current and previous US presidents have committed themselves to increased government spending with ambitious new programmes.<\/p>\n

Rishi Sunak on his part has made expansive promises, but no one knows how he will square the circle.<\/p>\n

With large deficits and massive public debt (sometimes greater than India’s), expansive approaches may no longer be sustainable in even the wealthy economies.<\/p>\n

They might even spell political or financial suicide — or both, as Ms Truss found out.<\/p>\n

Where does India fit in? Its government sector is large, relative to GDP, when compared to East Asia (excluding Japan and China).<\/p>\n

Yet, we have poor-quality public services in every direction, and under-spending on defence.<\/p>\n

That might tempt the thought that India’s government sector is in fact too small.<\/p>\n

But how do the East Asians do better with smaller budgets?<\/p>\n

Bangladesh too manages comparable growth rates, and in some cases better social indicators, with lower tax rates and a budget that is half India’s, at 15 per cent of GDP, and public debt equal to just 34 per cent of GDP.<\/p>\n

So are India’s governments simply bloated, given what they deliver?<\/p>\n

Besides, there must surely be a warning in the fact that some of the most problem-ridden middle-income economies have big governments, big deficits, high levels of debt, and large-scale corruption.<\/p>\n

Two prominent examples are Brazil and South Africa.<\/p>\n

India has to be careful not to go down that path.<\/p>\n

Perhaps the finance ministry or NITI Aayog could take a detailed look at what governments actually deliver and at what cost; how their services can be improved and expanded where necessary; how much money can be saved through doing things differently; and how many things the government does which it can safely leave to the private sector.<\/p>\n

Some international benchmarking may be a good way to begin.<\/p>\n

Feature Presentation: Aslam Hunani\/Rediff.com<\/em><\/strong><\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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