proud_indian
FULL MEMBER
- Joined
- Dec 7, 2008
- Messages
- 1,896
- Reaction score
- 0
- Country
- Location
In debt to dynasty? How rule by Gandhis has repeatedly pushed country towards indebtedness
Jul 07, 2016, 11.48 AM IST
By Krishnamurthy Subramanian and Abhishek Bharadwaj
“The Dynasty” is ready to roll its last throw of the dice with Priyanka Gandhi being drafted to play a leading role in Congress’s UP campaign. Given her husband Robert Vadra’s shenanigans during the UPA regime, UP voters must ask: Should we foster a local Benazir Bhutto with Robert Vadra playing the “Mr 10 percent” equivalent of Asif Ali Zardari? However, because this move is an attempt by The Dynasty to perpetuate itself, we need to ask an even more fundamental question: What does loyalty to The Dynasty get the nation? What is the legacy of umpteen years of rule by The Dynasty?
We examine this question here using economic indicators and conclude that the legacy is an unflattering one. It’s a legacy of retaining power through reckless populism. The numbers depict a key narrative: Building a mountain of subsidies without worrying about its disastrous economic consequences.
We collated data on various economic indicators from the World Bank database. We then separated them by the averages obtained during governments ruled or controlled by The Dynasty and governments ruled by non-dynasts. Thus, the UPA-I and UPA-II governments led by Manmohan Singh are classified as part of the legacy of The Dynasty because we all know Sonia Gandhi controlled the levers of that government through the National Advisory Council. In contrast, the government led by P V Narasimha Rao, whom Congress has banished from its collective memory despite his government heralding economic liberalisation in this country, is categorised under governments not controlled by The Dynasty.
The government led by Rajiv Gandhi, who took several steps towards economic liberalisation and heralded the telecom revolution under Sam Pitroda, belongs to The Dynasty. Of course, the government led by Indira Gandhi, under whom poverty increased significantly despite her vote-catching rhetoric of “garibi hatao”, belongs to The Dynasty as well.
After analysing a plethora of economic indicators, we discovered that the elephant in the room relates to subsidies. Governments run by The Dynasty doled out subsidies and other transfers to the tune of Rs 689,600 crore every year, as opposed to Rs 183,300 crore by non-dynastic governments. These figures are in real terms deflated to 2011 levels.
And this is not because there was necessarily more money to dole out during the time of the governments run by The Dynasty. Subsidies doled out by them amounted to 9.2% of GDP, almost double that doled out by non-dynastic governments (5.3%). Crucially, subsidies under the governments run by The Dynasty increased at almost 13% year-on-year while this growth was about 4% year-on-year under governments run by non-dynasts.
There were other important ways in which governments run by The Dynasty indulged in bad economics though the differences were not as stark as they are for subsidies. First, governments run by The Dynasty spent more indiscriminately when compared to the governments run by non-dynasts. Expenses amounted to 15.6% of GDP on average under governments run by The Dynasty. This ratio was 14.8% for the governments run by non-dynasts. Moreover, expense grew at 9.1% under governments run by The Dynasty and at 5.6% under the governments run by non-dynasts.
Second, governments run by The Dynasty indebted the economy more than governments run by non-dynasts. Total central government debt and the cash deficit was at least twice as much under governments run by The Dynasty as that under the governments run by non-dynasts. While the cash deficit does not account for future revenues that would accrue from current capital investments, it has the key benefit of revealing the deficit by eliminating accounting subterfuge.
As the fixed capital formation under governments run by The Dynasty was not very different from that under governments run by non-dynasts, future revenue accrual would not be very different. So the cash deficit does not certainly overstate the profligacy of governments run by The Dynasty. Also, governments run by The Dynasty reduced the servicing of debt (1.6% of gross national income) when compared to 2.6% of gross national income under governments run by the non-dynasts. Thus, governments run by The Dynasty doled out largesse and spent wastefully while indebting future generations of this country.
However, the outstanding difference pertains to the use of subsidies. The conduit between a government and the intended recipient of a subsidy resembles an open sluice with plenty of opportunities for others to dip into the stream before it reaches its final destination. Furthermore, subsidies create significant distortions in asset use. Subsidies also dampen individual incentives.
Thus, the unabashed use of doles despite their pernicious effects stands out as the key economic legacy of governments ruled by The Dynasty. UP voters would be well served by remembering this important fact as charismatic rhetoric is not going to get them “naukri, paisa aur makan”. Recall that “garibi hatao” by Priyanka’s grandmother was little more than charismatically delivered rhetoric.
Krishnamurthy Subramanian is Associate Professor of Finance, Abhishek Bharadwaj is a researcher at Indian School of Business
http://economictimes.indiatimes.com...towards-indebtedness/articleshow/53092923.cms
Jul 07, 2016, 11.48 AM IST
By Krishnamurthy Subramanian and Abhishek Bharadwaj
“The Dynasty” is ready to roll its last throw of the dice with Priyanka Gandhi being drafted to play a leading role in Congress’s UP campaign. Given her husband Robert Vadra’s shenanigans during the UPA regime, UP voters must ask: Should we foster a local Benazir Bhutto with Robert Vadra playing the “Mr 10 percent” equivalent of Asif Ali Zardari? However, because this move is an attempt by The Dynasty to perpetuate itself, we need to ask an even more fundamental question: What does loyalty to The Dynasty get the nation? What is the legacy of umpteen years of rule by The Dynasty?
We examine this question here using economic indicators and conclude that the legacy is an unflattering one. It’s a legacy of retaining power through reckless populism. The numbers depict a key narrative: Building a mountain of subsidies without worrying about its disastrous economic consequences.
We collated data on various economic indicators from the World Bank database. We then separated them by the averages obtained during governments ruled or controlled by The Dynasty and governments ruled by non-dynasts. Thus, the UPA-I and UPA-II governments led by Manmohan Singh are classified as part of the legacy of The Dynasty because we all know Sonia Gandhi controlled the levers of that government through the National Advisory Council. In contrast, the government led by P V Narasimha Rao, whom Congress has banished from its collective memory despite his government heralding economic liberalisation in this country, is categorised under governments not controlled by The Dynasty.
The government led by Rajiv Gandhi, who took several steps towards economic liberalisation and heralded the telecom revolution under Sam Pitroda, belongs to The Dynasty. Of course, the government led by Indira Gandhi, under whom poverty increased significantly despite her vote-catching rhetoric of “garibi hatao”, belongs to The Dynasty as well.
After analysing a plethora of economic indicators, we discovered that the elephant in the room relates to subsidies. Governments run by The Dynasty doled out subsidies and other transfers to the tune of Rs 689,600 crore every year, as opposed to Rs 183,300 crore by non-dynastic governments. These figures are in real terms deflated to 2011 levels.
And this is not because there was necessarily more money to dole out during the time of the governments run by The Dynasty. Subsidies doled out by them amounted to 9.2% of GDP, almost double that doled out by non-dynastic governments (5.3%). Crucially, subsidies under the governments run by The Dynasty increased at almost 13% year-on-year while this growth was about 4% year-on-year under governments run by non-dynasts.
There were other important ways in which governments run by The Dynasty indulged in bad economics though the differences were not as stark as they are for subsidies. First, governments run by The Dynasty spent more indiscriminately when compared to the governments run by non-dynasts. Expenses amounted to 15.6% of GDP on average under governments run by The Dynasty. This ratio was 14.8% for the governments run by non-dynasts. Moreover, expense grew at 9.1% under governments run by The Dynasty and at 5.6% under the governments run by non-dynasts.
Second, governments run by The Dynasty indebted the economy more than governments run by non-dynasts. Total central government debt and the cash deficit was at least twice as much under governments run by The Dynasty as that under the governments run by non-dynasts. While the cash deficit does not account for future revenues that would accrue from current capital investments, it has the key benefit of revealing the deficit by eliminating accounting subterfuge.
As the fixed capital formation under governments run by The Dynasty was not very different from that under governments run by non-dynasts, future revenue accrual would not be very different. So the cash deficit does not certainly overstate the profligacy of governments run by The Dynasty. Also, governments run by The Dynasty reduced the servicing of debt (1.6% of gross national income) when compared to 2.6% of gross national income under governments run by the non-dynasts. Thus, governments run by The Dynasty doled out largesse and spent wastefully while indebting future generations of this country.
However, the outstanding difference pertains to the use of subsidies. The conduit between a government and the intended recipient of a subsidy resembles an open sluice with plenty of opportunities for others to dip into the stream before it reaches its final destination. Furthermore, subsidies create significant distortions in asset use. Subsidies also dampen individual incentives.
Thus, the unabashed use of doles despite their pernicious effects stands out as the key economic legacy of governments ruled by The Dynasty. UP voters would be well served by remembering this important fact as charismatic rhetoric is not going to get them “naukri, paisa aur makan”. Recall that “garibi hatao” by Priyanka’s grandmother was little more than charismatically delivered rhetoric.
Krishnamurthy Subramanian is Associate Professor of Finance, Abhishek Bharadwaj is a researcher at Indian School of Business
http://economictimes.indiatimes.com...towards-indebtedness/articleshow/53092923.cms
