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The challenge of getting the economy on track
Thu, 7 Jan Pre-Open

Flow of investments in the infrastructure space is one of the first signs of a pickup in economic activity. Recently, the Finance Minister, Mr Jaitley stated that the government will continue to invest in the infrastructure space through increased allocations in the upcoming budget in February. The government had recently announced the 'Seventh Pay Commission' and 'One Rank One Pension'. Both the schemes will lead to an outflow of around one trillion. However, in spite of such huge outflows government is firm on stepping up public spending.

Private capital expenditure in the country has slowed down considerably due to high indebtedness and weak balance sheets of India Inc. The Mid-Year Economic Review released by the Finance Ministry shows that private capital expenditure contributed only 1% to gross domestic product (GDP) growth in April-September 2015, compared with an average 3.2% contribution in the 2004-11 period. Therefore, capital spending was raised by 31% to Rs 1.6 trillion during the April-November 2015 period in order to rejuvenate the economy.

With an aim to acquire funds for public spending, the government is in talks with a large number of international sovereign and pension funds to become partners in the newly set up 'National Investment and Infrastructure Fund'.

However, additional expenses on account of 'Seventh Pay Commission' coupled with increased expenses on public investments will force the government to re-assess its fiscal deficit targets.

While it is true that one of the key factors that dominated the election campaign agenda was to give infrastructure a big push; however, the government has not been successful in doing so, so far. The need of the hour is to strike the right balance and ensure that there are no more hurdles in ramping up infrastructure. This would be critical in ensuring a sustained high GDP growth for the country in the longer term.

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