The intense drama over the US debt ceiling we saw enacted in that country’s legislature has some striking similarities with India. There are also lessons to be drawn from that episode.

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The story is fundamentally about government spending and in that context delivering sustainable subsidies to vulnerable sets among the people. Its backdrop is the world’s biggest economy with a GDP at around $15 trillion and a population of around 250 million. The per capita income is naturally very high, though there are those who are below a certain level of income and hence considered poor by such standards. India with a national income one-eighth of USA and population roughly five times as many is also struggling with similar issues. The differences are of the scales.

The fight is between economic conservatives who believe in free-market principles and that people should be left free to look after themselves; those who believe that any government offer of help to people would kill the American spirit of self-help, individualism and entrepreneurship.

Opposed to them are those who profess to promise help and aid to the vulnerable sections of population and make some essential things of life affordable to all. This includes health care.

The health-care bit has, of course, a personal element as well. President Barack Obama in the run-up to the Presidential campaign and in his speeches had often referred to rising health-care costs in America which makes it unaffordable to sections of the population. In course of his own experience, he had come across such incidents and, therefore, moved to bring help to those who were not fortunate enough to be able to afford it. This, according to the Obamacare schemes, would be provided through cheaper insurance policies which should be bought by the vulnerable sets.

Without going into the details, the operation of the scheme will add to the costs of the US federal government. This is what the Republicans are opposed to. But then, they are opposed to big government as such and also the runaway increase in government expenses which has enlarged the US budget deficit.

The situation is somewhat alarming. The US had faced a similar kind of crisis in 2011 as well when Standards and Poor’s had threatened to downgrade the US government’s triple-A rating by the agency. That has created another round of instability in the global economy.  The financial markets were thrown out of gear, normal functioning was disrupted and the slow recovery from 2008 global financial crisis — again originating in the USA — was temporarily halted. The US debt ceiling was raised  from around $14 trillion to the current $16.7 trillion.  Now the issue is to raise this ceiling further to an unspecified figure to enable the US government to borrow more and meet its expenditure.

The conservative Republicans’ refusal to raise the debt ceiling had to be seen in this context of big government and big expenditure. They are opposed to the government spending its way to glory. They had insisted on curtailing the Obamacare scheme as a condition to raise the debt ceiling. President Obama, with his personal commitment to deliver affordable healthcare, refused to budge and the stand-off created the crisis. The Republican opposition to Obamacare was just incidental to its general opposition to government spending.

But this appears to have been ill-thought-out campaign from the point of view of popular sympathy. In the end, in view of dipping popularity approvals, the Republicans had to give in without gaining anything from the President by way of yielding to prune Obamacare.

The current deal does not resolve any of the fundamental issues. All it does is to give time to carry on until early next year. The government is funded till January 15 next year and the debt ceiling raised till February 7.

Beyond these magic dates what will happen? A major debt ceiling hike will be required, like in 2011. Failing that, the deal, of course, gives certain powers to avoid such a deadlock. The deal also constitutes a bi-partisan group, which will go into issues of government expenditure cuts and offer ideas of achieving these goals.

But the deal has certain features as well. The deal enjoins that to limit the costs of healthcare subsidisation, the income levels of the beneficiaries would have to be established so that ineligible people (those having income above cut-off levels) do not get cover.

Here are some similarities with our experience. We are trying to get food, healthcare or social services to the needy within the broader context of soaring government expenditure which are being funded by public borrowing. The issue is how far can a government go on borrowing and spending, even when it means offering subsidies to the really needy?

One option would have to be, of course, better targeting. That is, by limiting subsidies to only those who are really poor, going by their income levels. Secondly, by offering only those kinds of help which are really needed. A broad-spectrum subsidy like the fuel subsidies we are offering through lower prices of say diesel or petrol, enjoyed by the rich more than the poor, are misplaced. These are only adding to government deficit and more borrowing.

If a hugely richer country with far fewer people to attend to can get worried over these issues, India should make double the effort to address such subsidisation, if for nothing else then for considerations of equity. Because misplaced subsidisation delivers benefits to the undeserved at the cost of the really poor.

Then again,  the global economy should start thinking about the systemic impact of domestic issues of USA. In wave after wave, the US domestic economic considerations are introducing global uncertainty and disrupting the rhythm of the global economy. This is hurting the developing and emerging market economies (EMEs) the most. Efforts need to be made so that a global financial architecture is built, which is sturdy enough to withstand these threats from a single economy. We need a modern, efficient global currency. Failing this, we will all face repeated uncertainties that stall our own development and growth.

The author is a Delhi-based analyst and commentator.