India to continue with high public spending

Category: International Trade Sub-category: Credit Rating
Document type: news

Jeffrey Sachs, the leading economist, said "the country should continue with high government spending to stimulate growth, despite concerns over the bloating fiscal deficit, but called for a sustainable funding model."

“India has a generation-long backlog of infrastructure to build mass transport, urban housing, power generation, pollution control, waste treatment and water systems,” the Columbia University economist added.

Though the undermined concerns over the projected fiscal deficit of 6.8% for the current financial year, which the government has termed unsustainable in the long run, Sachs said: “I don’t think there should be a retreat from public investment.”

“There needs to be a way to finance these investments sustainably. India’s biggest challenge fiscally has been the mass subsidisation of public investment... (in areas like) electricity and fertilisers... which eventually have really broken the budget,” Sachs said.

He has declared that people must pay for the cost of infrastructure investments and at the same time there shall be proper government strategies to provide subsidy for the poorest, rather than extending it across the board.

Sachs view regarding India, "it requires to make much more serious efforts in its public financing mechanisms and information systems." “India is going to spend a lot of money on capital investment and it needs to understand the cost recovery element quite rigorously,” he added.

“Domestic expenditures, probably in part, fuelled by Budget stimulus, but also by large backlog of infrastructure and demand for investment in urban areas offset the decline in the exports,” Sachs said.

He added: “India is one of the success stories from the world perspective in 2009-2010 and I am confident that it can stay as a country with rapid and robust economic growth."

Source: Business Standard