FE@CAMPUS MASTERMIND: Response by Ajinkya Nandurdikar to question for Jan 21-27

Austerity measures are typically taken if there is a threat that a government cannot honor its debt liabilities

Austerity policies are often used by governments to try to reduce their deficit spending .

India Asia's third-largest economy is struggling to contain its fiscal deficit, which widened to 5.097 trillion rupees ($90.86 billion), or equivalent to 5.76 percent of its gross domestic product, in the 2011/12 fiscal year.

The government is looking to cut cost wherever possible with departments and ministries asked to reduce hosting foreign dignitaries or travelling abroad to the bare minimum as finance minister grapples with falling revenues and shrinking investments.

Discussions in government have underlined that rising cost of coal, gas and oil imports are taking a toll on its finances, apart from affecting the balance of payments position.

In Europe, Spain has cut over $80 billion in government programs over the next two years, the effects of which have contracted the economy and sparked countrywide protest.

However today, when the world is recovering from a global meltdown i feel austerity is counter productive to the growth of the country because

Reduced spending increases the already rampant unemployment,

Reduced spending reduces the growth of the country, which means the debt to GDP ratio does not improve; and

Short-term spending supports economic growth when consumers and businesses are unable to do so.