By coincidence, both India and the United States are simultaneously witnessing intense political jockeying over fiscal deficits and the size of the government budget. The bone of contention on budgets goes deeper than how much disposable income you or I will have in the next year.

What is at stake is the core philosophy of governance and the relative power of interest groups in both nations. Budgetary squabbles reveal how America and India are being buffeted by clashing worldviews on constructing prosperity and distributing wealth.
US President Barack Obama is battling the Republican Party to avoid “automatic, brutal spending cuts” that will kick in from March 1 if there is no political deal. Barring a compromise, an estimated $85 billion of “sequester” cuts in the federal government’s budget may befall an America struggling to recover from a monumental economic crisis that began five years ago. Mr Obama has painted an alarmist future where the sequester would force vital public utilities to shut down and lead to state collapse. America’s schools, hospitals, airports, policing and overseas naval power projection are all said to be on the chopping block if the Republicans do not strike an agreement on the budget. The heavens could fall, say the doomsday soothsayers, and America would be back in reckoning for the title of banana republic of 2013.
What prevents the Democrats and the Republicans in the US Congress from finding a middle ground to ward off this disastrous outcome? The basic motivation of the right-wing in American politics is to downsize state spending and limit the footprint of government in the economy. Being quintessential laissez faire advocates, the Republicans believe that America is in danger of becoming a “nanny state”, where private enterprises and businesses will be squeezed out by a state-subsidised and uncompetitive public sector.
Suspicion that liberals have a federal government expansion agenda and that this will imperil liberties of individual citizens, states and corporations is rooted in the history of American conservatism, going back to the Civil War of the 19th century and even before that. The spectre of nationalisation of big businesses, which went bankrupt after the Wall Street crash of 2008, and perpetual mistrust of Mr Obama as a cryptic socialist are the root causes driving the Republicans to bemoan the growing fiscal deficit and demand steep cuts in the government budget.
Right-wing economics in the US holds that the way to overcome the “Great Recession” since 2008 is to reduce government spending, tighten the fiscal belt and provide tax incentives for businesses to grow. For Republicans, the very identity of America as a bastion of capitalism where the government steps back and allows entrepreneurs to flourish is in danger if the budget is not pared down.
But the Democrats under Mr Obama are embarking on an exactly opposite vision to forge a welfare state, akin to the “Great Society” of Lyndon Johnson in the 1960s and the “New Deal” of Franklin Roosevelt in the 1930s. How can an American government, whose debt is already 74 per cent of the gross domestic product (GDP), afford to keep borrowing and spending on what the Republicans slam as populist and wasteful social schemes? Mr Obama argues that the deficit can be reduced in the long run by raising taxes on the “well-off and well-connected”. Deficit reduction is a valid goal, he admits, but the burden of accomplishing it must not be piled on the shoulders of the middle and working classes. And here, there is total deadlock because the upper classes are heroes of the Republican ideology, which glorifies them as the most productive and innovative segments of society.
India has its own fiscal-deficit ghosts to reckon with. With a public debt that is nearly 70 per cent of the GDP (the highest among the Brics group of nations), warning bells are going off about reckless government spending that is impairing India’s creditworthiness. Since the dollar is the world’s reserve currency, the US can uniquely afford credit ratings downgrades and still attract a lot of foreign investment. India has no such luxury. Our finance minister, P. Chidambaram, is under incessant pressure from the markets to end costly subsidies for fuel, fertilisers and food and slim the Budget deficit to levels where foreign investors and private corporations are comfortable that India would not default on debt. India’s economic competitiveness and present GDP growth paralysis are thus linked to irresponsible government spending.
But on the other side of the fence are advocates for retention of high state expenditure and even increasing it. With the general election looming in 2014, the ruling Congress Party knows how risky it is to cut welfare budgets and be labelled as an enemy of the “common man”. Economists may be correct that many state subsidies ironically benefit economically privileged classes in India, but the mythology of the government as mai baap (mother and father) of the poor is on the line whenever the fiscal deficit nightmare projections are forked out by the champions of free market. As village welfare, transportation and defence sectors are predicted to face drastic cuts in the upcoming Budget, rural development minister Jairam Ramesh has publicly appealed to Mr Chidambaram not to chase fiscal consolidation “at the cost of our social priorities”.
When Mr Obama talks of sparing the sequester cleaver from skewering social priorities, the trade-off is clear: education, healthcare and employment will indeed suffer if the budget is trimmed. But in a highly corrupt system like India, where middlemen live off the “mammaries of the welfare state”, it is not clear whether reducing state spending on subsidies will automatically exacerbate poverty and misery.
America and India are at two different pit stops in the race of economic history. The US is wilting under its worst economic crisis in a century and needs a state to wrest back the space monopolised by buccaneering private enterprises. India’s economy is still growing at a reasonable rate (by global standards), but it has a bloated welfare state that is not denting poverty and is plagued by a very narrow taxation base that is hopeless for balancing the Budget. Logically, the state in India must cut expenses and the state in America must spend. However, in politics it is not economic logic but the relative mobilising power of lobbies and the calculation about votes that win the day.

The author is dean of the Jindal School of International Affairs