The economic crisis in Sri Lanka and Nepal is a reflection of the wrong policies taken by the government at the helm of both countries. Some economists and experts have drawn a parallel between the weak foundations of the Indian economy and the current economic condition of Nepal and Sri Lanka. Some people said that these weak fundamentals of the Indian economy could escalate into a full-blown economic crisis in the future. Subhash Chandra Garg, the former finance secretary, refutes these claims and said no parallel exists between India and Sri Lanka as far as the economic situation is concerned.
I don't think there is any parallel between the Sri Lankan crisis and any crisis India might face. Sri Lanka, for the last many years, has been following a very unwise policy of over-borrowing from abroad without the ability to service debt. The second reason that Lankans have been very pathetic in taxation is that they have not been able to raise taxes. Garg said they have been overly generous in their expenditure programmes.
According to him, everything that can go wrong was wrong in the Sri Lankan policy framework for the last 7 -- 10 years. He attributes these factors to poor taxation policies, excessive expenditure and very unwise foreign borrowing, including borrowing from the Chinese, as the reasons for the economic crisis.
He said that India's tax to GDP ratio is a bit low and our expenditure management has not been that outrageously liberal or unwise.
We have not borrowed excessively abroad and we have under-borrowed abroad and most of it is domestic. Garg said that we have very large foreign reserves, which add to the cost to the government, rather than being underfunded.