We have seen the economic transformation of countries such as Japan, South Korea, and China, where they grew at rates of 10%+ for three decades. Exports and investments drove these high growth rates.
Such growth rates will require strong fiscal health, a thriving manufacturing sector, liveable cities, skilled human capital, and be driven by private investment. Investment rates will need to rise to around 35% of Gross Domestic Product. In turn, investment is financed by savings. Increasing domestic savings will be crucial in financing these additional investments. Improving fiscal health, along with a focus on formal job creation will increase the pool of domestic savings.
Fiscal stability
In FY24, the combined fiscal deficit (Centre + states), stood at 8.6% of GDP, and the combined Debt to GDP ratio stood at 81.6%. Government deficits will come down in the coming years as the economy continues to grow.
Tax to GDP ratios are improving, touching around 18% in the past year. Capital expenditures have also almost doubled in the past 10 years, reaching 3.5% of GDP. Whilst these parameters have improved significantly since the peak impact of the Covid-19 pandemic, further fiscal consolidation is needed. At the same time, the push towards capex must be sustained in the coming years. Annual net government borrowings have expanded from around ₹9 lakh crore in FY20 to about ₹18 lakh crore in FY24.
Sustained higher borrowings by the government can potentially lead to higher debt servicing costs by raising benchmark bond yields. As these yields serve as a benchmark, this translates into a higher borrowing cost for the rest of the economy. This is essentially what is known as crowding out.
هذه القصة مأخوذة من طبعة November 09, 2024 من Hindustan Times.
ابدأ النسخة التجريبية المجانية من Magzter GOLD لمدة 7 أيام للوصول إلى آلاف القصص المتميزة المنسقة وأكثر من 9,000 مجلة وصحيفة.
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هذه القصة مأخوذة من طبعة November 09, 2024 من Hindustan Times.
ابدأ النسخة التجريبية المجانية من Magzter GOLD لمدة 7 أيام للوصول إلى آلاف القصص المتميزة المنسقة وأكثر من 9,000 مجلة وصحيفة.
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