'Khatakhat' syndrome is becoming a new normal and it's worrying!

In a 'Khatakhat' move, Maharashtra to follow MP's 'Laadli Behna' model

Dear Reader,

Let's talk economics today. First, a welfare scheme being planned by the Maharashtra govt.

Maharashtra's Mahayuti-led government is planning to launch the 'Mukhyamantri Laadki Bahin Yojana', offering monthly financial aid to women in below-poverty-line (BPL) households.

• The scheme will be announced in the July 2024 state budget.

• It will provide Rs 1,200-1,500 monthly to 90-95 lakh BPL women aged 21-60, including widows and divorcees, directly into their bank accounts.

The scheme follows the success of Madhya Pradesh's Mukhyamantri Laadli Behna (MLB) scheme which helped the BJP win the state assembly elections last year and all 29 Lok Sabha seats in 2024.

• The scheme seems to be aimed at preventing a repeat of the 2024 Lok Sabha election losses in Maharashtra.

Fiscal Concerns: Maharashtra's fiscal deficit for FY 2024–25 is Rs 99,288 crore, with public debt at Rs 782,991 crore.

• With a debt-to-GDP ratio of 18.2%, the state ranks second in overall debt obligations among Indian states.

• The estimated cost to Maharashtra's exchequer is Rs 15,000–20,000 crore annually.

Political analysts suggest this scheme, along with expanding existing welfare programs, could bolster the ruling coalition's standing in the upcoming assembly elections, expected in October 2024.

This move reflects the larger turn to freebie politics putting the state finances at risk.

• States like Karnataka are already bearing the brunt of the same as is clear by hike in the fuel prices and the move to monetise around 25,000 acres of land near Bengaluru.

• Karnataka Congress govt has even roped in Boston Consulting Group (BCG) to come up with the strategies to boost revenue in order to fulfill its 'five guarantees'.

Speaking of fiscals, India has recorded its first Current Account surplus in 10 quarters. But is it really a good news? Let's talk about that in the next section.

Although a welcome news, the first Current Account surplus in 10 quarters might not be reflecting the reality

India recorded a current account surplus of $5.7 billion in Q4 FY2023-24. Driven by rising services exports and remittances, this is the first CAS in 10 quarters.

For the full fiscal year, CAD has more than halved to a seven-year low of $23.2 billion (0.7% of GDP) from $67 billion (2% of GDP) in FY23.

Current Account comprises transactions in goods, services, and incomes between residents and non-residents, including exports, imports, and remittances.

• Surplus suggests that the inflow of foreign exchange exceeds the outflow, boosting reserves and indicating financial stability.

• This time, the surplus is due to a lower merchandise trade deficit and a boost in services exports and remittances.

• For instance, services exports grew by 4.1% YoY, and remittances from Indians abroad surged by 11.9% to $32 billion.

The flip side: Despite the surplus, net foreign direct investment (FDI) fell sharply to $9.8 billion in FY24, a third of the $28 billion recorded in FY23.

• This decline in FDI poses a concern for long-term economic health.

• While the surplus is a positive shift from a high deficit, it's primarily due to reduced demand for imports, reflecting subdued domestic demand.

So, while a current account surplus may be a welcome change from a persistently high current account deficit, careful monitoring of individual components of Current Account is necessary.

Until tomorrow,

Anmol N Jain