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Should India learn from Brazil in reducing Fiscal Deficit and Budget Spending

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2011 has been a bad year for emerging markets with high inflation,slowing growth and rising interest rates.Most of the problems are a consequence of the 2008 Financial Crisis when emerging countries increasing fiscal spending and reduced interest rates to reduce the affect of the Lehman crisis.Now the Bill is coming due with slowing growth and higher inflation.Most of the BRIC countries have heavily increased interest rates in 2011 to slow inflation as their poor population can ill afford the damaging effect of inflation.

Brazil has reduced its 2012  Budget by $32 billion to control inflation drawing howls of protest from politicians who always want to spend more as if money grows on trees.The country has reined in spending in both 2011 and 2012 to reduce the fiscal deficit and spend more money on productive sectors like infra.

Brazil to cut $32 billion from 2012 budget: Report

Brazil’s government may cut as much as much 60 billion reais ($32 billion) from spending in 2012 in an effort to control its deficit and inflation, the Estado de S. Paulo newspaper reported, citing unnamed Finance Ministry officials.

Brazilian President Dilma Rousseff, who marks one year in office on Sunday, had planned to ease financial controls in 2012 after trimming about 50 billion reais in spending in 2011, the newspaper said.

India on the other hand has not learnt anything.The government is continuing it merry ways of spending and wasting billions of dollars by bringing in more social spending bills which have massive leakages.The fiscal deficit has massively overshot the target of 4.6% of the GDP .This has led to rising interest rates and a falling currency.The government in order to win elections has waived off loans and brought in the Food Security Bill which will lead to more corruption.Note I am big proponent of spending subsidies for the poor in a country of huge inequalities where $2 billion homes co exist with people living on less than $2 day.But the existing schemes are ineffective and corruption ridden.Grains rot in Indian warehouses and middlemen make off with the subsidies.Rather than spending more money the government should have increased the effectiveness of delivery.But I guess spending more is much easier than taking on powerful vested corruption interests.

PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in

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