How Poor Governance affects Personal Finance

Written by Vidya Kumar

September 16, 2013

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Summary: Poor government policies affect economic growth of the country negatively and this can lead to many problems like devaluation of the currency, high fiscal deficit, stall in agriculture, manufacturing and services sector, social risks like high crime rate and adverse health effects. It is important for us to exercise our right to vote and vote for people who we think can lead us to a path of growth and development in all aspects.

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Complete Article: 
The common man works hard and earns money so that he can meet his needs and at least some of his wants if not all. But everything is not in his or her hands always. External factors also affect earning capacity in some ways. One crucial factor is the country’s governance. The government policies related to various matters can affect one’s earning capacity.

Good governance and correct measures to step up economic growth will help the country as well as its people to have more income in their hands, better services and products and increased savings and investments. More investments will be pumped into various sectors – agriculture, manufacturing and services. On the other hand, improper governance and lack of positive steps by the government can lead to a myriad of problems that we have compiled below, which may or may not be related to each other and can feed off each other as well.

Loss of Confidence: Bad government policies and inaction by the government lead to loss of confidence among domestic as well as overseas investors. There will be a downgrade in the credit rating of the country. These factors will result in less money pumped in the country by overseas investors, devaluation of the currency and also hesitation from the part of domestic investors/businesses to invest more money in business.

Devaluation of Currency: Devaluation of the currency takes place which means whatever is imported in the country becomes expensive and you have to pay more than before to buy those things. When you have expenses in foreign currency, fiscal deficit and fall in the value of the local currency will mean the expenses go higher. Education abroad, buying of imported goods and vacations abroad will become automatically more expensive. So the value of your earned money becomes less.

Negative effect on the different sectors: Bad government policies related to agro sector, manufacturing and services sector will lead to decreased confidence levels among overseas as well as domestic investors. This would mean stagnation in production and therefore reduced economic growth that leads to higher unemployment. Here it becomes a vicious cycle. Higher unemployment and lower earning capacity leads to lower domestic consumption, which affects the economic growth negatively again.

Social and Health Issues: Poor government policies or non-action by government in areas of economic growth leads to poverty and unemployment that can affect the social fabric of the country as well. Crime rates increase as the levels of frustration among the people increase if their basic needs are not met. Security of people’s lives is compromised. Government spending on security will increase leading to budget cuts in other areas like investment in projects

If the poor cannot afford to meet their basic needs, health security issues arise. They will be more vulnerable to illness. Diseases, infections and malnutrition will be on the rise among them and the overall health index of the country will be negatively affected. People above the poverty line will also be affected by bad health and will have to spend more on health care thus leading to less savings. Again government spending on health will increase leading to budget cuts in other areas.

Misuse of Funds: Governance problems like corruption, misuse of tax payers’ money by people in power, inefficiency in execution of projects and lack of transparency in government spends in projects leads to loss of money and additional money has to be pumped in government projects and investments. This leads to two problems. One – the project which was undertaken to improve people’s lives does not get completed on time leading to problems for people. Secondly, additional taxpayers’ money is pumped into these projects which means less of money in government’s hands to invest, save and spend on earmarked projects. This again leads to less economic growth that directly affects our finances by way of lesser job opportunities and reduced earning and savings potential for people.

We as citizens of the country should do what is in our hands to stall the negative factors. We should vote and vote for the right persons who we think can lead us to a path of growth and development in all aspects. We should raise our voice against what we think is detrimental to the country’s growth and analyse and question government decisions which will force the government to become more accountable and careful in taking policy decisions.
#gettingyourich

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