Central Government Spending as % of GDP
People, who think India is socialist, should study nations such as the USA, France, UK, Italy, Germany etc. These nations are part of the developed world and unlike the belief or the misconception that the government’s role in driving economic growth will be minimal in these nations, it is false.
India stands out as a true capitalist nation with lowest government spending as a percentage of GDP.
While the majority of these nations have witnessed lacklustre economic growth in the recent past India despite low government spending has led from the front.
Federal Government Debt & Pandemic of COVID 19
The pandemic of COVID 19 brought the globe to a standstill for a couple of months. Nations in the European continent where government spending is one of the highest should report the worst of GDP numbers for the coming quarters since Tax revenue collection will decline in these nations.
France’s government spending occupies 56% of the GDP and during COVID 19 it was in a standstill state. Revenue collection is going to take a hit. The only way out for France is to raise federal government debt and stimulate the economy.
Stock Market Index & COVID 19
Markets know these numbers and a lot of other data sets which I will miss. Despite weakening of the affairs of the federal government in the developed world, indices of respective nations are painting a different picture.
|Country||Index Name||COVID 19 Bottom Value||Value as of 18th May 2020||Return %|
One probable reason for indices in these nations to have reacted positively could be stimulus spending by these nations, well that would demand a deeper investigation into each Nation’s stimulus announcement. Another reason that I can think of could be index composition which varies greatly. S&P 500 is technology heavy (24%), while SENSEX is financial services heavy (39%) and generally towards the end of bull cycle, large cap growth stocks tend to do well and technology falls in the camp of large cap growth while India has fewer growth companies in the large cap space.
Indian Government Debt
India’s Federal government too can load up debt and stimulate the economy and continue to stay a true capitalist nation.
Federal debt is also highest in these nations compared with that of India, yet India is worried about worsening macros and is being conservative. One possible reason could be that the Government of India does not want to interfere with the private economy and crowd out private sector borrowing.
|Country||Central Government Debt % of GDP|
Source – worldeconomy
While a smaller government in India may look depressing as of now, but a flip side of it can be that we may see positive green shoots when the private sector clampdowns are lifted and people’s life come back to normalcy and the bearish scenarios painted by market experts may turn out to be too harsh and economy may surprise positively.
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