Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: 4.8
Article rating: 5.0
Article rating: 3.0
Article rating: No rating
Article rating: 5.0
Article rating: No rating
Article rating: No rating
Article rating: 4.5
Article rating: No rating
Article rating: No rating
Article rating: 4.2
Article rating: 5.0
Article rating: 4.0
Article rating: No rating
Article rating: No rating


What India needs to be a $5-trillion economy

Author: IANS/Wednesday, February 28, 2018/Categories: Economy

What India needs to be a $5-trillion economy

By Taponeel Mukherjee

For India to become a $5 trillion economy, the government needs to go from being a spender to an even greater enabler of businesses than it currently is. Debates about the appropriate level of government spending abound. The tight balance between spending to boost critical sectors versus managing a fiscal deficit is a tightrope the government must walk.

Numbers such as the $526 billion infrastructure gap suggest that innovation in policy will be essential for India to truly bridge this gap, create jobs and generate growth. Our premise is that while spending by the government is important, it needs to focus much more on how to enable businesses, especially private investment in infrastructure.

According to a World Bank report, government spending as a percentage of GDP has averaged at 10.29% between 1960 and 2016, with the number in 2016 being 11.65%. There is pressure around both the fiscal deficit and revenue deficit in India. In addition, no remarkable change in tax revenues is expected soon that would provide a significant increase to government spending -- therefore it will be wise to assume that spending as a percentage of GDP will not see significant change upwards any time soon.

Hence for India to create necessary infrastructure and jobs it is essential to allow private capital to invest. The government must continue to spend and efficiently allocate public finances, but to truly push up growth rates and aspire to more than double the size of the economy, it is imperative that more thought is given to measures to boost private investment.

The recent policy by the Modi government to open the coal mining sector to the private sector is a welcome step. If implemented well, this should pave the way for more competition and higher efficiency.

The most important step towards allowing private capital into infrastructure is to bifurcate the infrastructure market to identify two segments: (1) The financially viable sectors (2) The economically value-creating but not fully financially viable sectors.

If infrastructure sectors such as ports, refineries, renewable energy, power transmission, mining, toll-roads, water and irrigation can all be categorised between the "financially viable" and the "economically value-creating but not fully financially viable", then the former needs effective and transparent regulations while the latter needs government spending in addition to effective regulations.

The above analysis needs to be based on robust cash-flow models and past project experience. The bifurcation is important because for financially viable sectors the government must push for regulations that attract capital. Tax policies to boost capital expenditure such as competitive accelerated depreciation, tax-free windows and centralised clearance windows would be the key. While for the sectors that deliver economic value but aren't fully financially feasible, government spending in varying degrees will be required.

What is important to realise is that high quality infrastructure will be essential to provide India an opportunity to push up growth rates. It is simply not possible for government spending to bear the entire burden of the infrastructure spending.

According to a World Bank global ranking of trade- and transport-related infrastructure for 2016, the Netherlands was given 4.29 points and Singapore 4.20. India in this ranking was at 3.34 points, significantly lower at 35th rank versus the Netherlands at 4th and Singapore at 5th position.

It is interesting to note that according to the World Bank, government spending in the Netherlands was at 25.04% of GDP, while the same number for Singapore was at 11.28%. While not all government spending is on infrastructure, what the data seems to suggest is that different countries, given their economic dynamics, have used different tools to boost infrastructure. It isn't essential for a government to spend a significant percentage of GDP to be a high-quality infrastructure country.

A $5 trillion economy is a target that is worth aspiring for. Infrastructure spending will have to form a significant component of the value-creation in the economy. The positive multiplier effect of infrastructure creation cannot be overemphasised in terms of job creation, economic growth and national prosperity. It is time for the Indian government to pay greater attention to its role as an enabler and facilitator of infrastructure.

Print Rate this article:
No rating

Number of views (227)/Comments (0)

rajyashree guha


Other posts by IANS
Contact author

Leave a comment

Add comment



Ask the Finapolis.

I'm not a robot
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest



The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free