A news report stated, “Modi’s mission self-reliance: Make in India, lower import dependence,” followed by a lead summary stating, “Prime Minister Narendra Modi said on Tuesday that the COVID-19 crisis has taught us the importance of local manufacturing, the local market and local supply chains.”
I think this is going to fail — what Indian firms need is competition, not tax breaks. I hope this stimulus doesn’t result in more debt, but that’s unlikely. The States and the Central government have put together $2.5 trillion in debt and I’m hoping this isn’t an additional $0.3 trillion. It’s nearly the size of our GDP. That’s a lot of debt for a low-income economy, and not desirable.
Maybe a bit, a minor bit of debt in these difficult times is alright. As crazy as this would sound, if I were given a choice between 2% GDP growth and $0.3 trillion of debt, I would choose low growth.
On further thought, I figured debt is a great tool to aid the present circumstances if it can be repaid. So, taking a debt right now is totally acceptable, if it is possible to pay back. My judgement of the reforms tells me that it is a lot of debt and probably going to strain our future finances. The future income may not be sufficient, with the way things are, to repay this debt. This is why a debt of 100% of our GDP is scary for a low-income economy such as ours.
It is alright to take debt so long as one can foresee that it can be repaid. Sadly, I don’t see that happening with the stimulus that has been announced during the lockdown. That’s a lot of debt if it is going to be undertaken.