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Massive public expenditure will reverse economic slowdown: Sinha

The BJP-led NDA government plans to reverse the current economic slowdown by pumping in a massive dose of public expenditure into infrastructure.

The plan, based on Keynesian models, is being pushed through by Union Finance Minister Yashwant Sinha.

In an interview, Sinha revealed his intentions to unleash a slew of high-spending schemes to build roads, ports, and irrigation and power projects in the near future.

"There will be quite a lot of action within the next few months on this front," he said.

New power projects, which the Centre till recently was hoping would be taken up by the private sector, will now be a thrust area for the government.

Public sector power giants - National Thermal Power Corporation and the National Hydro-Electric Power Corporation -- have been asked to implement their greenfield power projects at the earliest.

Sinha has even promised central funds for these projects with the government planning to add at least 8,000 megawatts of power over the next two years.

The finance minister said that contracts for a total of 6,000 kms of the golden quadrangle of express highways will be given out by end-June.

The government also plans to build a network of rural roads linking up the hinterland, at a cost of Rs 25 billion.

Another Rs 10 billion has been earmarked for state highways, he added.

The government will also extend liberal help to the states for irrigation projects, he said.

This bout of high-dose public spending, apart from creating fresh capital assets, will increase spending power and create new jobs, Sinha said.

Industrial growth in 2000-01 was 4.9 per cent as compared to over 8 per cent in 1999-2000. A worried central government consequently decided to put this 'spend your way out of the morass' plan into action.

The concept of massive spending as a way out of depression, or its less rigorous form recession, was first propounded by Lord J M Keynes. Faced with the great depression of 1930s in the west, Keynes advocated a massive public works programme, which eventually was turned into the now famous 'new deal' plan which built a chain of dams, roadways and power projects in the US.

Sinha said that slow agricultural production had also adversely affected industrial growth.

In an economy of the size of India, poor agricultural growth meant low rural purchasing power which led to slower demand for industrial goods.

Sinha expected better economic performance this year and 7-8 per cent GDP growth in the next three to four years. Part of this would accrue from the large government spending.

The spending will create externalities and pep up private sector activity in these and allied areas.

Sinha said that the people are currently not spending money which was leading to a demand shortage.

Satisfied by an 'extremely fruitful meeting' he had with the captains of industry representing the automobile, cement and construction sectors, Sinha said he planned broadening the consultations and would soon invite representatives from other industrial fields.

The finance minister said that while there would be no further tax sops, his ministry would go into specific difficulties the industrialists highlighted.

He said the suggestions given by the industry were being examined and whatever changes possible would be incorporated.

On making available cheaper consumer finance, Sinha told the industry that the government could do little as interest rates were deregulated. They should, therefore, work with individual banks to ensure how cheaper finance could be made available to consumers.

Sinha said that he had expressed this opinion to S S Kohli, chairman of Indian Banks Association and the CMD of Punjab National Bank, who was part of the delegation related to construction industry.

There was some plain speaking, too. Sinha chided car manufacturers that they had not passed on excise sops given in his budget to the consumers.

He blamed the cement manufacturers for increasing prices when production was falling. There are allegations that a cement cartel is preventing the prices from going down.

The captains of industry reversed the apple cart and told the finance minister the way out of the recession was massive government spending, tax sops and cheaper finance.

UNI

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