India's Fiscal Cliff - A Daunting Future Ahead

The World now seems glaringly concerned with impending Fiscal cliff in USA due on January ,2013 if the Obama Adminstration doesn’t come with a concrete fiscal plan to tackle the humoungous national debt it is  surmounted now & deep recession plaguing many nations of Eurozone. But ,a bigger problem seems to ensue India, world’s second fastest economy  which is now trapped in a High Inflation Low Growth cycle and makes it difficult for the Indian govt to achieve it targets  through fiscal consolidation every time proposed for the last decade.
Problems ,according to experts is Fiscal consolidation is driven through Revenue side whereas the condition is worsening from the Expenditure side.

  What is the Problem 
Govt is spending way above its capacity 

Which is resulting in High fiscal deficit

That is met with ever increasing borrowings.

What is the Reason 
1) Wasteful Spending arising out of the Populist measures by UPA govt.   

2) Developmental spending has decreased from 16.6% of total spending in 2007-8 to 13.7% in 2012-13.

3) Subsidies rising at a fast pace.

Consequence of High Fiscal Deficit
• Pushes up Interest rates, lowers private investment ,growth and employment.
• Increases Inflation and reduces room for monetary policy stimulus.
• Increases risk of external imbalances.
• Sovereign downgrade and flight of foreign capital.
• Weaken the rupee and negatively impact capital markets.
• There will be no room for counter-cyclical measures if global economy weakens.

 What can be done
• Rationalise Subsidies through 
 Better targeting of benefits to the needy.
 Increase administered prices and gradually make them market determined.
 Switching to direct cash transfer.
 Bring strong deterrent to power subsidies.

• Settle Loss-making cos that cause credit and cash crunch through recurrent losses – 96,710 crores was the total accumulated losses of state run companies.

• Go for Massive Asset sale to keep borrowings low
 15 lakh crore – Market capitalization of listed 45 state run companies.
 1.1 lakh acres – Surplus land with the railways with 10,000 acres in Urban centres.

• Reform Tax regime to Increase Taxes
 Build consensus and roll out GST quickly.
 Roll out measures to cut tax disputes.
 Simplify and cut corporate tax on prime industrial land worth thousands of crores.

Obama Vs Romney -Democrats hold the edge in US Presidential election'12

The latest opinion polls suggests a close fight between incumbent Barack Obama and his rival Mitt Romney, both the Democrat and Republican camps have claimed victory ahead of the crucial presidential elections set for today.

The latest Washington Post ABC tracking poll released yesterday gave Obama (50%) a three point lead over Romney (47%), which is still within the margin of statistical error.

 

"The poll also finds that Obama remains the favorite, with 55% of voters saying that he will win in Tuesday's election. By contrast, 35% believe Romney will win while 10% register no opinion," the daily said.The polls are too close to call, the CNN said, so did other major news networks.The much sought after RealClearPolitics gave Obama an edge of 0.7 percentage point lead over Romney.

 

Both the candidates are banking on strong economic reforms and regulatory reforms  to woo the customer attention and confidence. Here are Obama's and Romney's key plans for the economy: JOBS Obama has said his jobs plan would strengthen American manufacturing, grow small businesses, improve the quality of education and make the country less dependent on foreign oil. He envisions 1 million new manufacturing jobs by 2016 and more than 600,000 jobs in the natural gas sector, as well as the recruitment of 100,000 math and science teachers. Repairing and replacing old roads, bridges, runways and schools are part of his plan to put Americans back to work.

 

 

Half of the money saved from ending the wars in Iraq and Afghanistan would be used to fund infrastructure projects. Romney has promised 12 million jobs in his first term, or about 250,000 jobs a month. Economists say the economy would likely generate that amount of jobs anyway.

His plan focuses on tax reform, pushing the economy toward energy independence, cutting regulations and boosting trade, especially by reducing barriers to trade with China. Romney says Obama has not been aggressive enough in challenging unfair Chinese trade practices and that he would use both the threat of US sanctions and coordinated action with allies to force China to abide by global trade rules.

 

Democratic party Presidential candidate not only enjoys support and solidarity in his home surf but also from an overwhelming support  from the major countries worldwide.

His popularity can be attributed to  the following reasons below :

1)    Obama’s foreign policy – Barack Obama has punctiliously proven his ability  to execute decisively the America’s broadened foreign policy from getting U.S from long & costly wars in Iraq and Afghanistan ,avoiding direct intervention in Syria and resisting the reckless push to attack Iran considering its Middle East Israel strong opposition against Iran ‘s growing nuclear ambitions. He was instrumental in aligning the foreign policies and military objectives for the aggressive hunt of terrorists and embarking a limited role in forcing regime change in Libya , .Meanwhile ,Romney’s image  worldwide is projected as the condescending behaviour of the rich and  ignorance of the oblivious folks.

 

2)    Romney is projected as an extension of  infamous  Bush worldwide-  Media pundits and diplomats worldover are comparing Mitt Romney’s conduct and ambitions ( Wall Street Barbarian and Emphathizer ) as an extension of George W Bush failed foreign policies and economic reforms which brought the US economy to the catastrophic recession of 2008.

 

3)    Higher  spending on Social Security schemes &  Higher Taxation on the rich  -  Though Obama health care law and other social security schemes will be widen the US fiscal deficit and bloated up National debt.It is seen as a measure to improve the state of economic recovery and accelerate opportunities for employment and job creation.Taxing the rich on a higher tax slab will definitely increase the total exchequer collection and should create a level playing ground  to fuel  consumerism in US economy which roughly contributes to 70 % of U.S economy.

 

The stage is set and U.S voters are eager to cast their right to elect the 45 th President of USA (World’s largest Economy ,Military and Political superpower) after an scintillating election campaign for the last 12 months .Moreover, the fate of Global Economy , security issues and idealogical differences plaguing our increasingly interwined society will rely on the outcomes of this historic election.

 

Well democrats have an edge in this election slated to win consecutively for second time crowning again Barack Obama as the reigning President of USA.