X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
We're in a mess - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Feb 9, 2009

    We're in a mess

    Almost 90% in debt, with little to spare and a wide scale pre-election spending to see, India's balance sheet is in a real mess. And the most horrifying part of this is that the perpetrator, the government, is not recognising it at all! Apart from the official mention that the deficit (excess of expenditure over income, funded by borrowings) is on a rise, we are yet to hear any meaningful caution from the government of the mess that it has brought us into. Rising fiscal deficit is a silent killer, and has already been eating away into India's economic growth for the last several decades.

    Apart from the usual suspects like higher expenditure on salaries to government employees, mounting interest payments, improperly targeted subsidies and lower tax to GDP ratio, this time the economic stimulus is also playing its part in worsening the misery.

    We remember a statement from the current finance minister a few years back. "The deterioration in the fiscal situation has not shown up in a crisis, so far, because of the strong fundamentals of the economy," he said. This is because inflation remained low all this while and interest rates were generally at historically low levels. A huge build-up in foreign exchange reserves also supported the government's case.

    Times have changed now. The global economy induced slowdown has already cast its wings on India. Corporate profitability has slowed down considerably and companies are scampering for funds for meeting their day-to-day needs, forget the huge capital expenditure plans that over which dust has settled.

    And while the government, through the Reserve Bank of India, has tried to soothe nerves by lowering the cost of money, people (investors and consumers alike) are scared enough to bite the bullet. We also haven't heard any take-off of the fiscal stimulus plans, apart from the fact that so much funds have been allocated to the same.

    What we are rather hearing from representatives in the planning and finance divisions of the government is that the situation is not really worrying. The Deputy Chairman of the Planning Commission has maintained that "high fiscal deficit will not in any way hamper the flow of foreign investments." The gentleman is still worried about what foreigners will do when one is not clear what the insiders (Indian investors and consumers) are thinking and doing?

    He has also said that "high fiscal deficit due to economic down turn is a global phenomenon and India is no exception." We fully agree to this last statement. Our only question is - why has the government not been able to clear the mess in the heydays of 2003 to 2007, when the economy was booming and government coffers were loaded?

    Indian Express reports, "The budget estimates for 2008-09 promised a revenue deficit of 0.5% and a fiscal deficit of 2.5%. But this was without providing for items like farmers' debt relief, Sixth Pay Commission and National Rural Employment Guarantee Act (NREGA). So the budget estimates were fudged and on February 16 we will know the Centre's fiscal deficit is 6.5% of GDP. That's without including Oil and fertilizer bonds, which have adverse effects similar to those of the fiscal deficit. With those off-budget items thrown in, the Centre's deficit will be 9% of GDP."

    These are horrible figures! We shall soon see the country's sovereign credit rating downgraded, and that is a lesser issue. The big issue is that while all the governments all these years recognised the demon of excess spending, the responsibility to tame it disappeared completely under the current government.

    The politicians have already found scapegoat in the external slowdown for the mess they themselves have created. But the fact remains that wherever we are today is all thanks to populist expenditure and flagship programmes that, while benefiting the politicians, are yet to benefit the lives of those governed - we the people!

     

     

    Equitymaster requests your view! Post a comment on "We're in a mess". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    A Darkness Is Spreading Across the US (Vivek Kaul's Diary)

    Aug 22, 2017

    Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 22, 2017 (Close)

    MARKET STATS