In the first part of the article I had illustrated the issues facing the Indian Economy. Now I come to solutions that are critical both for the short run as well as the long run.

Growth and only growth is the fix to India’s Fiscal Deficit problem in the long run. Now besides creating an enabling environment for private sector investments there are a few things that the government can do to revive growth in the near term.

-Focus on Urban Infrastructure projects-Urban infrastructure projects are easier to execute, especially projects like metros, overhead road and rail networks, water and waste water projects etc. An initial focus on these could contribute strongly to investment revival.

For example metro projects in 20 cities would involve a layout of Rs 200000 Crores. These projects do not face problems related to land acquisition

The DMIC involves an investment of $90 billion over the course of the project. It has been in the making for nearly 6 years now and lot of the plans and land acquisitions in a number of states are also through. Taking up project awards on the various parcels of this project will be extremely beneficial as it will create a huge amount of investments as well as job creation.


-Railway and Road projects-The boom in the last cycle started from the NHAI projects. Road projects are hugely positive for the economy as they generate large employment, & require lot of inputs & machinery. The economy around the project sites also gets a boost with increased demand for a number of products. The slowdown in this sector is easier to reverse as collection of user charges has not been an issue with roads till date.Easier exit norms post completion of project combined with proper evaluation of bids can attract lot of PE money. A combination of EPC & PPP with relaxation of Environmental norms will lead to a rapid revival of investments. An award of 8000-9000 kms of projects per annum will lead to an investment cycle of Rs 100,000 per annum.

Railways have been the most neglected sector of the Indian Economy. Huge investments can take place and start at a rapid pace by means of up gradation of stations, trains as well as on new tracks. This might require a greater support for the government in the short run. However the multiplier impact of this on the economy will be huge.

—  Agriculture supply chains- In good times supply constraints have not been worked on especially in the case of agricultural produce where it is an estimate of many that nearly 33% of the perishable produce gets destroyed. This is valued at Rs 200000 Crores. There is need to set up food processing units, modern cold storages as well as transportation networks. The total storage capacity in the country currently is just 300 lakh tonnes. Estimates indicate a requirement of another 370 lakh tonnes requiring an investment of Rs 120000 Cr by 2016-17.     It is unlikely that the wary private sector will come in without government support or tax benefits in this segment.  Government needs to move fast on this as this is one key facet of supply side reforms for bringing down inflation in the long term. This will set the tone for Round 2 of Rural Growth & Prosperity which started off with the inefficient NREGA scheme

-Relaxed environmental norms in the short run– Forest and Environment clearances take the maximum time need to move with a deadline. Most countries that have developed till a particular point of time have had relaxed environmental norms. However we seem to be moving towards one of the most stringent norms even at low development level of the economy. Another five years of somewhat relaxed environmental norms is not going to kill the country. This time frame can be used to streamline processes and guideline.  This needs to be accompanied by time bound project clearances.

I have illustrated some steps that should be the first steps to revive the economy. Consumption demand will take time to kick in. Awarding projects and implementing their execution is key. In the near term government needs to spend in Viability Gap Funding, Equity Funding or Funding private sector projects by the means of long term soft loans. Once the revival starts it can be self sustaining for a long time.

Leave a Reply

Your email address will not be published. Required fields are marked *