27 July 2023 : The Hindu Editorial Notes PDF
The Hindu Editorial
27-July-2023
Daily Current Affairs For UPSC ,The Hindu Editorial Summary
1. Shedding more light on the debt dilemma.
Topic: GS3 – Indian economy.
Debt levels of Indian economy:
- India’s fiscal deficit and public debt levels have been a matter of concern even before the COVID-19 pandemic.
- Pre-pandemic, India’s debt levels were among the highest in the developing world and emerging market economies.
- Due to the pandemic, the fiscal deficit relative to GDP increased to 13.3% in 2020-21, and the aggregate public debt reached 89.6%.
- As the economy recovered, the deficit and debt ratios decreased to 8.9% and 85.7%, respectively.
- However, projections indicate that the debt level is unlikely to return to the pre-pandemic trajectory in the medium term.
- With upcoming State and General elections in 2023 and 2024, the electoral budget cycle could further push the debt ratio.
Financial Repression:
- The debt-dynamics equation suggests that when there is no primary deficit, if the GDP growth rate exceeds the effective interest rate on government bonds, the overall debt will decline.
- Financial repression, aimed at keeping government borrowing interest rates low, distorts the financial market.
- High deficits and debt have significant costs to the economy. Interest payments on debt constitute over 5% of GDP and 25% of revenue receipts, crowding out essential expenditures on education, healthcare, and infrastructure.
- States like Punjab, Kerala, Rajasthan, and West Bengal have relatively high Debt to Gross State Domestic Product (GSDP) ratios, causing concerns about sustainability and resource allocation.
- High debt levels make it challenging to implement counter-cyclical fiscal policies and respond effectively to economic shocks.
- Higher deficits and debt lead to lower sovereign ratings by rating agencies, increasing the cost of external commercial borrowing.
- The burden of large deficits and debt will be borne by future generations, as “today’s borrowing is taxing tomorrow.”
On the debt burden:
- Achieving a consolidated debt-to-GDP ratio of 58.2% recommended by the 14th Finance Commission for 2019-20 seems unfeasible in the medium term.
- The Finance Commission recommended the Union government to reduce its deficit relative to GDP from 43.6% in 2015-16 to 36.3%, and States to maintain their deficit at about 22%.
- High primary deficits of 3.7% of GDP in 2022-23 and budgeted at over 3% in 2023-24 would lead to elevated debt levels in the medium term.
- The GST has stabilized after six years and is expected to maintain high growth potential, contributing to an increase in the aggregate tax-GDP ratio by 1.5 to 2 percentage points.
Government’s further action:
- There is a need to rethink the role of the state and vacate activities that should belong to the market rather than competing with it.
- Policy interventions should focus on disinvestment, avoiding unnecessary expenses in public sector entities, guarding against return to old pension schemes, and avoiding large-scale giveaways for electoral reasons.
- Cash transfers are preferred over subsidies for redistribution to avoid unintended resource distortions, and enforcing Fiscal Responsibility and Budget Management rules on States is crucial for macroeconomic stabilisation.
Conclusion:
- The government should reassess its role, relinquishing activities better suited for the private sector, and enforce fiscal responsibility rules on both central and state levels.
- By adopting prudent fiscal practices, reducing unnecessary expenditures, and implementing targeted measures, India can work towards achieving fiscal stability and sustainable economic growth in the future.
Model question: What are the key challenges posed by India’s fiscal deficit and rising public debt levels? How can the government address these challenges to achieve fiscal consolidation and sustainable economic growth?
Source: https://www.thehindu.com/opinion/lead/shedding-more-light-on-the-debt-dilemma/article67124430.ece
2. Measuring well-being in India.
Topic: GS3 – Indian economy.
Relationship between rising income and human well-being:
- India’s economic growth accelerated to 6.1% in the March quarter, leading to euphoria and confirming its position as one of the fastest-growing emerging economies.
- However, it is important to recognize that income is a narrow measure of well-being, as argued by scholars like Amartya Sen and Angus Deaton.
- Measuring well-being requires looking beyond just income.
- The focus on income growth in the debate might have missed other important aspects of overall well-being.
Why income is a narrow measure of well-being?
- Income does not capture non-monetary aspects of well-being, such as happiness, life satisfaction, and overall quality of life.
- It neglects the distribution of income, which can affect overall societal well-being.
- Income fails to account for factors like access to healthcare, education, social support, and environmental conditions, which significantly impact well-being.
- The relationship between income and well-being is not linear, and beyond a certain point, higher income may not lead to proportional increases in happiness or life satisfaction.
- Different individuals may have varying needs and preferences, making income alone an insufficient indicator of their overall well-being.
What other indicators can be better than just income?
- Human Development Index (HDI): HDI considers life expectancy, education (measured by literacy rate and school enrollment), and per capita income to assess human development and overall well-being.
- Gross National Happiness (GNH): GNH measures the overall happiness and well-being of citizens, incorporating factors like psychological well-being, health, time use, social connections, and environmental sustainability.
- Bhutan’s Gross National Happiness Index: Bhutan’s unique approach to measuring well-being emphasizes nine domains, including psychological well-being, health, education, time use, good governance, and cultural diversity.
- Multidimensional Poverty Index (MPI): MPI considers multiple dimensions of poverty, including health, education, and living standards, to provide a more nuanced understanding of poverty and well-being.
- Social Capital Index: This index evaluates the strength of social networks, trust, and community engagement, which play a vital role in overall well-being and societal resilience.
Model question: Why is income considered a narrow measure of well-being? Discuss the limitations of using income alone as an indicator of societal progress. Provide examples of alternative indicators, and explain how they offer a more comprehensive assessment of well-being.
Source: https://www.thehindu.com/opinion/op-ed/measuring-well-being-in-india/article67123075.ece
3. Resilient, but just: On the IMF’s economic outlook and lopsided growth.
Topic: GS3 – Global economy.
State of global economy and future:
- The International Monetary Fund (IMF) projects global economy to expand by 3% in 2023, indicating signs of weathering recent challenges.
- Despite a marginal upgrade to projections, the IMF warns that challenges and risks still cloud the economic horizon.
- The United States and China, the two largest economies, have slowed down significantly and face uncertainties amid global and domestic headwinds.
- China’s post-reopening rebound is fizzling out due to a contraction in the real estate sector, weakening consumption, and slumping overseas demand for its exports.
- The euro area is reeling from the Ukraine-war induced spike in gas prices, with momentum decelerating, particularly in Germany and France.
- Inflation, especially core inflation, remains above central banks’ targets in some regions, necessitating demand-retarding monetary tightening.
- Russia’s termination of the Black Sea grain deal may push up grain prices by 15%, potentially affecting low-income economies in Africa.
- Many frontier economies face heightened debt vulnerabilities, highlighting the need for a global debt resolution initiative to prevent debt distress.
Conclusion:
- Leaders must recognize the risks of lopsided growth, which could weigh down the global economic edifice if vulnerable nations are left behind in an interconnected world.
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