Sunday, December 28, 2008

What are the effects of war against terrorism on the fiscal policy of the Indian government?

1. What is fiscal policy?

Fiscal policy (economic policy) is a government policy for dealing with the budget (especially with taxation and borrowing). Fiscal policy measures to achieve the right economic environment to unleash the full potential of a country’s economy.

2. What is terrorism?
The calculated use of violence (or the threat of violence) against civilians in order to attain goals that are political, religious or ideological in nature; this is done through coercion or instilling fear.

3. Some facts of terrorism in India:
First of all I would like to quote some of the terrorist incidents and other conventional wars taken place in India through out the near past. India has had conventional wars in the near past. It had with Pakistan a conventional war in 1965 and in 1971. It had a conventional war with China in 1962, one recently in Kargil.
In the four conventional wars that India has fought, including Kargil in it, the total number of the security people who lost their lives is 9857. In the near past, the number of civilians who have lost their lives to terrorism is 62.221.
The security personnel killed in various terrorist actions is again over 9000. Number of people rendered homeless is close to 6 lakhs. The total amount of money spent for anti-insurgency crosses Rs.45,000 Crores. Which should have been spent for the sake of village people’s health care facilities, shelter, electricity and irrigation system.
Terrorism has an adverse effect as far as economic growth and development is concerned. How much did one of India's most affluent States, the Punjab, suffer on account of terrorism in few years?
Event today the key economic hubs of Mumbai, Bangalore and Hyderabad have all been attacked in recent years, resulting in the deaths of hundreds of people. Since 2004, The Times of India reported Monday, India has lost more lives to terrorism than any country other than Iraq.
Home minister’s statement after terror strikes; “from July 11, 2006 till September 13, 2007 397 people have been killed in Mumbai, Varanasi, Hyderabad, Jaipur, Bangalore, Ahmedabad and Delhi.” The Times of India has reported Tuesday, Sep 16, 2008.

4. What are the effects of terrorism on civilian?

It has an adverse affect up on the civilian, not only physically but emotionally, psychologically as well as economically. Thousands of innocence civilian have lost their lives some became handicapped or psychologically ill. They are infected by different kinds of deceases.

Many of them have migrated from one place to another, for example many people come from Kashmir to other states of India. Many people are suffering from starvation and scarce of food because of unemployment. Illiteracy rate is increasing because people can not afford to get education due to the above mentioned obstacles. Shelter, electricity, employment and healthcare facilities (lack of awareness about HIV), are some other major causes caused by terrorism.

5. What are the effects of terrorism on the economy?
India has a partially planned economy, in which it has two general types of expenditures.
Development (applies to infrastructure and economic growth) and
Non-development (applies to international affairs and military spending).
Over the last ten years, non-development spending has increased five times, while funding for infrastructure development has been weighed down by corruption and inability to complete projects.
The Indian government has often been restrained to fund national infrastructure projects because of uncontrolled corruption. A tragic problem that India faces is its foreign loan debt.

For over a decade, India has been financing military growth with foreign loans. 40% of non-development expenditures in India go to interest payments. This is a huge percentage considering all the roads that need to be built, the people that need to be fed, and the ever-increasing problem of AIDS throughout the nation.

On the other hand if there is a threat to the country and its people, a country is supposed to protect its nation at any cost. And for this purpose a country require a strong army, police and intelligence network with the world’s countries as well as modern technological weapons.
These all things require a sufficient budget to achieve. The security men require to be trained and be paid well so that they can be able to protect the country’s civilians. India has to make sure that its nation is secured if not the instability of a country itself is an economic threat. Neither a foreign investor nor an Indian investor will invest in India if there is no assurance for them and their wealth.

Today, Indian government is training a number of anti-terrorism officers. Anti terrorism studies require in-depth understanding of explosives, weapons of mass destruction, extremism and terrorist techniques to prevent their operations.
As international violence and terrorist activities are increasing, our government and military actions are focusing on introducing practical strategies such as planning, prevention and resolution. These anti-social activities tend to increase but these advanced anti terrorism education can help our country meet the challenging security problems.

India's military spending is set to overtake Britain's present defense budget within five years as the country transforms its armed forces to counter-balance China.
India's defense spending has risen by an average of 18 per cent in each of the past three years. If this continues, India's present defense spending of £15 billion will more be than double to £35 billion in 2013.

Its rapid growth in spending is spurred by growing tension with its northern neighbor, China. The two nations share a bitterly disputed, 2,100 mile border and are rivals for influence in Asia. The Indian navy is seeking to become a "blue water" force, capable of operating worldwide.
India on recently hinted at doubling its defense expenditure as its current spend was much below the world average despite a booming economy. Defense minister A K Antony on has said the modernization of armed forces was one of the top most priorities of the government. "Our defense budget is just 1.99% of the GDP, which is one of the lowest in the world. The ideal situation would be 3% of GDP, which is the global average," he added. We must keep in view the varied security challenges being faced by our nation.

The defense minister said the country's most important challenge in the foreseeable future still remains the growing instability in its neighborhood. It doesn't only affect peace but it also brings severe damages to the economy.There has been much written about the short-term macroeconomic impact of terrorism attacks on investors’ risk aversion, equity market valuations, bond yields, oil prices, aggregate consumption and investment activity and even the medium-term effects in the regulatory, trade and fiscal policy responses by governments and the private sector, but much less is known about how this potentially long-lasting heightened terrorist threat affects the stock prices of individual firms.Designing successful policies to prevent terror, to lessen the costs of terrorism, or to reduce an economy’s vulnerability to attacks well help us.

While the physical damage caused by terrorism is grabbing public attention, there is another type of terrorism taking place in our country (Financial Terrorism) and which apparently has not shocked the people to the same extent. Corruption is nothing but financial terrorism. India is one of the most under-policed states in the world, the U.N. norm is for 222 police personnel for every 100,000 people. In India, it is 122 for 100,000. Moreover, rural policing has almost collapsed, so that those targeting cities are able to use rural bases without fear." The security situation might well prevent the benefits of India's economic boom from reaching its less developed parts.

"It is usually the poor who get killed in terrorist incidents, and the value of their lives is marginal," "That is why there is no effect on politics, economy or governance. India's economy has grown by more than 8% a year, among the fastest rates in the world.

A new industrial resurgence, increasing domestic savings, a pick-up in capital formation and a rapid growth in exports are the emerging opportunities for raising resources and sharing prosperity. Global uncertainties, an acceptable range of inflation and government spending are challenges reinforce the need for continuity in the prudent mix of fiscal and monetary policy measures with no scope to slip on the annual deficit targets.

6. What then is the real answer to this?
The answers are several. For one, you need a very powerful, not only domestic but with international cooperation a very strong link, a network virtually a national and international network, as far as the intelligence systems on these people are concerned. You need to have knowledge of their activities in advance because terrorists always choose different time and place of their assault.
They never give you warning in advance and therefore targets are taken by surprise. You need a genuine and a powerful international cooperation as far as terrorists are concerned. You need a powerful security regime as far as terrorists are concerned and finally you need a very strong and powerful legal regime.

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