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Time for another stimulus in India?
Mon, 23 Jan Pre-Open

The government of India has been blamed for its inaction and policy paralysis. This inaction has hurt the country's economic growth which has dropped to just under 7% from earlier levels of 9%. The government's lethargy has scared both foreign as well as domestic investors. Private sector is cautious about investing in India because they don't know if their investments would ever start yielding positive results for them.

To counter this and to bring back the economy on the path of growth, the government has drawn out a US$ 35 billion (approximately Rs 1.76 trillion) public sector investment plan. Under this, the cash-rich public sector units like Coal India, Oil and Natural Gas Corporation Ltd. (ONGC) and National Mineral Development Corporation (NMDC) would be spending their surplus cash to expand their operations. In the government's opinion, this public sector infrastructure spending will help boost the country's GDP (Gross Domestic Product) growth in the coming years. The government is also hopeful that this growth would help attract more foreign as well as private sector capital which in turn would further boost growth in the coming years.

While this is a credible plan, however, we are all only too aware that stimulus of this kind is successful only for a short period of time. And that too, if it is actually implemented. For example, Coal India is reputed for repeatedly missing on production and delivery targets. The near blackouts in the power sector due to the lack of coal have been hitting headlines for quite some time. So even if we assume for a minute that these companies would actually go ahead and invest in their operations like they have promised, would that be enough to get the economy back on track? It would work for sometime but then what would happen after that? The only solution then would be policy reforms. Something the government either does not wish to talk about or address.

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