knock knock.. Is crisis at door?
Rather go to bed without dinner than to rise in debt. -Benjamin Franklin
We are going to bed without dinner but still debt is rising. Our outstanding liability is around 67% of total GDP. Fiscal deficit at the end of August was around 96% of the budget estimate for 2017-18. Then one important question arises – ‘Are we moving towards 1991?’ Let’s see..
Fiscal deficit is obviously very high. For this time, I am taking absolute figure (not in percentage). Both states and central fiscal deficit is very higher than 1990s Fiscal deficit. Total outstanding liability is rapidly increasing and very high compare to 1991. Revenue deficit is also higher than 1991 in absolute terms.
(Source - Data from Reserve Bank of India is used for calculation)
So does it mean we are very close to crisis? Let’s see another side of picture.. Foreign reserves are increasing and very high compare to 1990s. Now let’s observe the trends of the ratio of these variables to foreign exchange reserves. As far as ratio of fiscal deficit to foreign exchange reserve, total outstanding liability to foreign exchange reserve and revenue deficit to foreign exchange reserve are concerned we are at good position compare to 1990. It means we have enough foreign reserves. This is good but again our net exports are negative and not improving. Yes it is true that we are at better position compare to 1991 but now it’s hard time to think about our outstanding liabilities. We can’t ignore the total outstanding liabilities of states. Although various steps has been taken into account for domestic industries, net export is not improving. Just limiting the expenditure is not enough.