Are economic policies of India better than that of China, Japan or USA? When we talk about the economic policy, USA and China forms the two extreme ends of a curve. USA has a free and liberal market where government interference is negligible and believes that market forces will cater to all needs of people in optimum quantity and price, as per Adam Smith’s theory. While, couple of decades ago China was a firm communist country. Though now, it has liberalized market, government has significant say and control over each and every activity. In comparison, India has balanced market where government interferes when needed. This kind of policy is way better than that of USA and China as it takes care of people along with market. Also, it stops the companies if they indulge into cartel or monopoly. Economic policy of a country consists of mainly two policies viz. a) Fiscal Policy – is determined by government and decides government expenditures, taxes, and debt. It is long term in nature and determines the progress path of economy. b) Monetary Policy – is generally determined by central bank of that country and uses instruments like Repo Rates and OMOs to control liquidity. It is short term in nature and used for controlling vital market rates. Fiscal Policy of USA:
Till date the driver of US economy was high capital expenditure and Exports. However, after 2008 crisis there had been fall in exports. Also, there was cut in tax rate till 31st December 2012, tax rates cannot be increased as it might trigger recession. So due to increase in government borrowing, Fiscal deficit for the year 2007-08 was increased to 5.3% of the GDP. Before 2008 crisis fiscal deficit was controllable on account of revenue earned by capital expenditure and export in the economy. However, after crisis there has been very low investment in the economy of the country with very high Fiscal Deficit. Fiscal deficit for the year 2011-12 was 8.7 percent of GDP. Fiscal Policy of Japan:...
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