India's quantity and quality of social sector spending is "inadequate" by global and other emerging market standards, and the upcoming budget should address this sector, says an HSBC report. According to the global financial services major, fiscal multipliers of health and education spending are even higher than that of capex, but they often get side-lined.
"Given the mismatch with the election cycles, it comes as no surprise that India's quantity and quality of social sector spending is inadequate by global and other emerging market standards," said Pranjul Bhandari, Chief Economist HSBC India.
Bhandari further said that "in the season of bold moves, the upcoming budget on February 1 is a good chance to look beyond the immediate and undertake steps that have higher longer-term payoffs".
According to the report, while the growth impact of social sector spending is higher than that of current and capital spending, the full benefits accrue only after the first five years. "While social sector spending overtakes the growth impact of current spending from the first year itself, it only overtakes the growth impact of capital spending around the sixth to eighth year, which is later than five years, the typical lifetime of a government in session," it added.
According to HSBC, social sector spending can play a superior role in enhancing macro fundamentals higher growth, lower government debt, lower inflation and more jobs. "We believe social sector spending by the government is not just desirable for its own sake, but is also growth and macro stability enhancing. In fact, this kind of spending can be even more impactful than capital spending by the government," Bhandari said.