Public Expenditure – Solution to Financial Crisis and Recession

Public Expenditure is one of the ways that Government all over the world has resorted to solve the problem of Global Economic crisis. Fiscal Stimulus is another strategy adopted by many governments including India to over come the repercussion of Economic crisis. The main idea behid increasing the investments in Public Expenditure is to improve the status of Purchasing power of common man. Even wars which is a form of investing in Public Expenditure helped US, UK to reduce the severity of Economic slowdown that their country is facing. Any investments which leads to productive output or unproductive output as part of Public Expenditure is desired as it increases the demand for goods and services. The bale out plan by US Government to tune of $700 billion was an act of stimulant to improve the financial situation in their country.

Selection of Schemes to improve efficiency of Public Expenditure

The investment schemes that the government decides to invest upon as a part of Public Expenditure has to be carefully choosen. The investment should have well defined return which may be Long term or short term, but it is expected to go for project/schemes which has definite returns especially in Developing countries such as India which needs return on every rupee spent in order to sustain the growth to reach status of Developed Country.

The schemes which is selected to impart impetus to provide soultion to fatal Economic slowdown is based on its capacity to drive the GDP of Country. Infrastructure is one of the schemes which has definite returns and it drives GDP of country to great extent, but the problem with it is that it has long gestation period. The empowerement of Public’s purchasing power takes a long time in this form of investment. Schemes such as Rural Employment schemes, Housing schemes have direct impact on laymen and have shorter gestation period so such schemes is favoured. The other way for judicious investment is to provide incentives to SME sector, Microfinance organization which is marching at a rapid rate to become a major contributor on nations GDP.

Fiscal Stimulus

Fiscal stimuls adopted at times of Great Depression is different from that of todays recession due to differnt methods involved in functionality of Governemnt. Government of India functions as a welfare state now where as US fucntioned as Liberal state during depression. Fiscal stimulus may be in form of reducing the direct taxes or it may be reduction in Indirect taxes such as Excise duties. Both of them tries to empower common mans purchasing power.

Source: The Hindu, January 19, 2009

Special Economic Zones and its role in Development of India

Special Economic Zones is the approach adopted by Governement to provide the needed thrust for overall Development of Nation. The ultimate objective of setting up Special Economic Zones is to make our country self-sustained in all areas such as Infrastructure, Science and Technology, Manufacturing, Communication, Education. Stimulating the process of Industrialization through SEZ will help India emerge as a Developed Nation by 2020.

Industrialization should create employment opportunities to counter-act increasing unemployment problem, which happens to be a major threat for emergence of India as a developed Nation by 2020. Our Economy largely depends on Industrialization process for it to sustain increasing population.

Now moving to other aspect of SEZ where it is considered to be threat to Agricultural Population and an important cause of Environmental Pollution. It is at this point that Advancement in Science and Technology comes into picture. Government should take steps to promote Research&Development Activities in area of prevention of Environmental Hazards due to Industrialization and in developing Techniques that yield high outputs for a given fixed part of Agricultural Land. Industrialization is a must needed thrust for nation like India which is on its development path and without which the process to attain the status of Developed Nation by India would lose its dynamism. Government should take a balanced approach as “Agricultural Sector, Environmental Pollution” are equally important as that of Industrialization.

Source: The Hindu, December 21, 2008