Gujarat chief minister Narendra Modi recently announced major investments in the state. According to estimates, Gujarat has cornered about 22% of total investments lined up for India this financial year, the highest by any state. Gujarat Government has been able to achieve this feat on account of its good infrastructure and governance. Modi said that his government will continue to spend heavily on infrastructure projects and that the economic slowdown doesn’t trouble him. He said that the heavy infrastructure spending from the government coffers will stimulate growth and consumption in the state. He also announced a loan interest subsidizing scheme for infrastructure projects in the state rather than letting the private sector put them on hold.
China too recently announced a massive $ 576 billion bailout package for the Chinese economy. Looking into the nuances of the package, a major part of it is directed towards building infrastructure which was not planned earlier. The Chinese government surely sees this slowdown as an opportunity to build up on the areas it is already good at. Such a massive unplanned additional government expenditure on infrastructure will give necessary boost to the economy and also help build infrastructure for the future. The government is ready and willing to sacrifice short term fiscal targets for long term prosperity of the Chinese state.
Back to India, after cutting repo rate by more than 2.5 % and infusing about INR 1,45,000 crore in the Indian economy, we are still in the midst of a major economic slowdown. The measure has been effective but not had the desired effect. The government by reducing borrowing costs & making the required capital available to the industry is doing its bit in not letting the private infrastructure projects go out of stream. But the Indian & the various governments also need to gear up their own spending. Such measures will affect fiscal targets in the short term, but go a long way in maintaining the 8%+ growth rate for India apart from promising good infrastructure. Gujarat & China have taken the lead, now India should follow the path.
China too recently announced a massive $ 576 billion bailout package for the Chinese economy. Looking into the nuances of the package, a major part of it is directed towards building infrastructure which was not planned earlier. The Chinese government surely sees this slowdown as an opportunity to build up on the areas it is already good at. Such a massive unplanned additional government expenditure on infrastructure will give necessary boost to the economy and also help build infrastructure for the future. The government is ready and willing to sacrifice short term fiscal targets for long term prosperity of the Chinese state.
Back to India, after cutting repo rate by more than 2.5 % and infusing about INR 1,45,000 crore in the Indian economy, we are still in the midst of a major economic slowdown. The measure has been effective but not had the desired effect. The government by reducing borrowing costs & making the required capital available to the industry is doing its bit in not letting the private infrastructure projects go out of stream. But the Indian & the various governments also need to gear up their own spending. Such measures will affect fiscal targets in the short term, but go a long way in maintaining the 8%+ growth rate for India apart from promising good infrastructure. Gujarat & China have taken the lead, now India should follow the path.
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d fiscal targets cant be ignored..a country's investement rating depends upon it..if theratings are bad..an investor wont invest in India.
ReplyDeleteKeynesian Economics rules!! Up fiscal measures when monetary policies will not be effective. Directionless Fisc. measures however do nobody any good except for generating temporary employment. India no doubt needs to invest in Infra if it needs to sustain its growth but where will it find that $450b that IMF has estimated to be the requirement(Dont turn a blind eye to our fisc. deficit).
ReplyDeleteChina's problem is two pronged.
1> It has already done a lot for Infra in the cities while rural areas still languish.
2> chinese economy is majorly dependent on exports n quite a sizable population works in export based industries. A shift to rural infra would mean rehabilitating all these people to the ports n rural areas.
Salute to Narendra Modi, atleast some lesson for center.
ReplyDelete