Needed, innovative ideas to spur the economy

By M H Ahssan

India need not go by the global mantra of unlimited fiscal expansion. It should rather creatively target government spending.

Political parties have a great opportunity to come up with truly innovative and inclusive ideas to re-energise India’s economy as the western world slips into the worst recession since the great depression of 1930. Even as political parties prepare to release their election manifestos over the next week or so, it will be interesting to see how leading formations like the UPA and NDA respond with new ideas to the unprecedented situation developing in the global economy.

Even if the full impact of job losses and economic distress is yet to be felt uniformly across the country, especially in rural India, the climate of growing distress and insecurity will force political parties to come up with new ideas to mitigate the impending crisis.

In some sense, this is an inflexion point for India’s political economy which is waiting for the political class to introspect and look carefully within and come up with ideas specific to local culture and situations.

Globally, the new mantra is unlimited fiscal and monetary stimulus. But it may be foolish to blindly follow the herd. Strangely, as the IMF exhorts the world to expand the fisc to lift the global economy, rating agencies like S&P are busy downgrading the outlook for every economy that is expanding the fisc. Except, of course, that of the United States. The US enjoyed the highest rating at the end of Bill Clinton’s presidency when America had a huge fiscal surplus and it is still rated AAA when the US fiscal deficit is projected to expand to an unprecedented 15% of GDP! Simply because it runs the printing machine for a currency which the world habitually accepts.

So the short point is, emerging economies like India will have to think for themselves. It is here that the innovativeness of the Indian intelligentsia and its political class will be tested. One important component of this will be how the Indian government targets its increased spending at the Centre and state levels. If the gross borrowings of the Centre and states together has increased from some 7% to 12% of GDP since 2007-08, we surely need to figure out how the extra 5% of GDP or $50 billion is being spent. It must stimulate the economy in some way or the other.

The current global crisis provides the biggest opportunity to creatively target spending by the Centre and states. One successful example is the way the government set aside Rs 5,000 crore for replacement of old state transport buses that had been fully depreciated in the books decades ago. According the Cabinet Secretary, KMChandrasekhar, orders have been placed by various states for 14,000 buses which are to be delivered in the next few months. “I am informed by the Chief Secretaries of various states that the companies supplying the buses don’t have the capacity to supply so many buses before the June deadline. So the deadline may get extended after a new government is in place”, said Chandrasekhar. This is one fiscal stimulus scheme which appears to be delivering quick results. India needs a hundred such targeted schemes which will deliver results within six months.

Public sector banks could play a big role by setting up special loan appraisal division for small entrepreneurs and self-employed businesses. For instance, the thousands of decrepit taxis and smaller commercial transport vehicles—over 25 years old— plying in cities like Mumbai, Delhi, Chennai etc could be offered replacement loans by banks. The repayment period could be made longer and part of the interest component subsidised by the government. This would not only raise demand for vehicles in the immediate future but also raise productivity in a big way, besides improving energy efficiency.

The Centre and states could work together in many other ways. For instance, the home ministry can work with state home departments to refurbish thousands of police stations and other infrastructure across the country. This would increase the offtake of cement and metals and other items that the small scale industry provides. In short, there is a need for hundreds of such small ideas that can bear results in the immediate future. India has the advantage of volumes. Every small idea, in terms of value, can multiply in millions.India is fast urbanising and waste management and environmental pollution is a huge issue. This is also a unique opportunity for public policy.

The Congress party can revive Rajiv Gandhi’s aborted plan for cleansing the Ganga. The original effort did not fully succeed because it became a bureaucratic, top-down project. The same idea can be revived in a bottomup fashion by involving village panchayats and municipal bodies in small towns. The idea must be to create thousands of small infrastructure related to waste management, for the millions of inhabitants alongside the Ganga. Ganga has a powerful cultural connotation and if conceived well this could well turn out to be a grassroots movement. The existing funds under NREGA or JNURUM could be used in the Ganga project. Both the main political parties of the country, Congress and BJP, are struggling to become relevant in the Gangetic belt. Even politically, a massive effort related to improving the infrastructure around the Ganga could provide the right socialeconomic fillip. Any takers?