Route to sustainable growth in India – Subsidies Vs Investment

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Shaila Srivastava ,Partha Sarathi Banerjee & Tamoghna Das
Iosr Journal
Publishing Date
SIMSR International Finance Co
  • Abstract

Successive governments have taken multiple measures to alleviate poverty through fiscal largesse. But most of these measures are aimed at reacting to the problem rather than targeting the root cause. With a high fiscal deficit, India cannot continue to afford such schemes. There is need to quantify the usefulness of these subsidies in terms of poverty eradication and their impacts on the national macros, given that still about one-third of the Indian population lives below the poverty line, and we do not have an effective public distribution system. Statistically it can be seen that sustainable GDP growth has been attained in the past through invetments in capital formation while subsidies result in fiscal deficit. Through secondary research, this study is an attempt to find the means of channelizing government spending on subsidies through an alternative route to attain a permanent solution to alleviate poverty. Through the case of India’s Food Subsidy bill, this study tries to illustrate how government funds can be channelized towards asset creation which in turn can replace perpetual government spending, thereby containing India’s fiscal deficit. To support our argument, we have used the Keynesian model to demonstrate the conversion of the subsidy into limited period investment expenditure for asset creation which will reap perpetual benefits ensuring sustainable growth