Admitting fears of recession, India Inc has urged the establishment of a National Infrastructure Stimulus Fund, among other measures, to boost industrial growth. Such a fund is a step in the right direction as it ensures higher investments in building roads, seaports, airports, power plants and other infrastructure to generate employment and boost demand. The rationale for a Rs 1,00,000 crore fund is that the government’s stimulus packages and enhanced expenditure from supplementary grants is not adequate to address the problem of a fast-slowing economy. But from where will the resources come for such an ambitious fund? The Confederation of Indian Industry (CII), the author of this proposal, suggests that this can come from unspent amounts of government programmes, budget outlays and the World Bank. However, this is much easier said than done.
The sad truth is that India does not have the fiscal headroom for funding such a huge programme. It is running a budgetary deficit that is at dangerous levels that got it into difficulties during the early 1990s. As the government is living way beyond its means, it is unlikely to get bolder with a stimulus fund as it has only few months in office and its priorities are to ensure its re-election in the national polls in April-May 2009. Nonetheless, this is the time to ambitiously step up public investment not only for revitalising the stalled national highways programme and port expansion but also building rural roads and irrigation systems. According to the CII, a National Infrastructure Facilitation and Monitoring Agency is also needed to facilitate and monitor the implementation of infrastructure projects of national importance.
Such an infrastructure fund is imperative as what the government is claiming as enhanced public spending from supplementary grants entails only limited capital investments. The list includes implementing the Sixth Pay Commission recommendations, meeting additional requirements of the National Rural Employment Guarantee Scheme, besides food and fertiliser subsidies. Such subsidies and other revenue expenditures do not amount to the necessary fiscal boost for growth. Resources must flow into building roads, ports, telecom, power facilities and other infrastructure to impact on a flagging economy. A National Infrastructure Stimulus Fund clearly is an idea whose time has come, to borrow a favourite expression of Prime Minister Manmohan Singh.