The Hindu Business Line : Now, for a stimulus

Recently, the Prime Minister, Dr Manmohan Singh, reiterated what he has been saying the last few years — that India needs to invest around $500 billion in “economic and social infrastructure”. Two years ago, in October 2006, he told a conference on infrastructure held in New Delhi that the national economy would find it difficult to grow at a rate of 9-10 per cent unless $320 billion were invested in “upgrading infrastructure over the next five years”. The point is that, though the need for such investment has been recognised, the actual flow of funds has been inadequate, which perhaps has led the Prime Minister to renew his appeal now.

In fact, there is now greater urgency to ensure that money flows into sectors such as roads, airports, power plants and ports, given the financial crisis gripping the world economy. The Government is aware of the need for such a policy, the strongest evidence of which are the plans to announce a stimulus package with a thrust on financial, export and housing sectors. The deputy chairman of the Planning Commission, Mr Montek Singh Ahluwalia, has said that additional funds will be allocated to ongoing projects where there are indications of a slow-down because of a shortage of resources. Clearly, this is a strategic step in the right direction though it will take some time before the economy and the marketplace begin to feel the favourable impact. Even so, the great merit of such a step is that it will send a positive signal to the nation’s investing community as a whole and will also help keep things going at a time when there is the danger of economic activity slowing down even further.

However, the biggest hurdle in this approach is in the funding; government resources are already stretched by the farmers’ debt-relief scheme, the staff pay increases and, of course, the burgeoning subsidies. The fiscal deficit this year will overrun by a substantial margin the initial estimate, cramping the Government’s pump-priming measures even at the planning stage. This is why it is important that the spending is targeted at sectors that have seen a precipitous fall in demand. Obviously the government effort cannot make up entirely for the textile export market lost or even for the drop in the domestic demand for commercial vehicles, but there can be no questioning the value of a helpful, quick pulse of government spending to rejuvenate some of the sagging sectors in the economy.

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