Focus On Public Investment

  • The idea that the government should lead investment revival by spending from its purse seems to be gaining ground quickly.
  • The thought was first expressed by Chief Economic Adviser Arvind Subramanian a month ago while releasing the government’s mid-year review of the economy.
  • Mr. Subramanian was of the opinion that public investment may have to play a greater role to complement and “crowd-in” private investment.
  • This had to be done within the constraints of the fiscal situation.
  • Finance Minister Arun Jaitley endorsed this view, saying that the government would take some special steps to increase public investment
  • He also pointed out that it would be a challenge to do so within the constraint of the fiscal deficit.
  • Mr. Jaitley expressed the government’s predicament well.
  • It is a fact that private investment in infrastructure is in a comatose state thanks to over-leveraged balance sheets and excess capacities that may take a long time to be absorbed.
  • Some companies have already started to repair their balance sheets by shedding assets through mergers and acquisitions and using the proceeds to settle their dues with banks.
  • Clearly, though the de-leveraging process has begun, it will be a while before the private sector cleans up its act and goes for fresh investment.
  • The onus to stimulate a revival is, therefore, clearly on the government now.
  • The Centre has been appropriating a part of the bounty from falling global oil prices in the form of higher excise duties
  • Finance Minister is on record as saying that this money will go directly towards building new roads and highways and not into the Consolidated Fund of India.
  • This will give an impetus to the highways expansion programme that has been struggling for want of adequate interest from private developers.
  • For this, the scale and quantum of public investment required is much bigger and this is where the government will run into the fiscal wall.
  • The focus is on the coming fiscal and the Budget will provide an insight into the government’s plans on this front.