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India Steps Up Public Investment - 2001-09-08


India says it will step up public spending on infrastructure in an effort to revive the country's ailing economy. The announcement comes at a time when both the government and economists are expressing concern about a slowdown in the economy.

Business leaders and economists in India are welcoming Prime Minister Atal Behari Vajpayee's commitment to dramatically step up public investment.

Mr. Vajpayee told leading Indian industrialists Friday that a looming economic crisis can only be averted by increased spending in sectors such as railways, roads, and power.

The government has promised to spend $16 billion to kickstart the slowing economy, using surplus funds belonging to banks and financial institutions. It hopes that the increased public spending will stimulate private investment.

Mr. Vajpayee has also promised to accelerate privatization of state-owned industries, and to reform labor laws.

Economic growth in India has slipped to 5.2 percent in the last year from 6.4 percent a year earlier.

Economists have described the trend as worrying in a country where nearly half the population lives below the poverty line. Basudev Guha, from the independent Council for Research on International Economic Relations, explains. "I think the projection was that, if India continues to grow at seven percent per annum, then we can reduce poverty to about half the existing level in about ten years," he says. "As soon as the slowdown causes the growth rate to be revised downward to say five percent, it means that we are not going to achieve those poverty reduction targets in the next ten years or so."

In a report delivered to Prime Minister Vajpayee on Friday, U.S.-based consultant group, McKinsey Global Institute, said India needs to increase economic growth to 10 percent annually to prevent an unemployment crisis.

The report says the country needs to open all sectors of the economy to foreign investors, reduce subsidies and change protectionist policies to attract more foreign investment.

A number of major U.S. and European companies came to India in the early 1990s, when the government first introduced free market reforms. But Mckinsey warns that many of these foreign investors are frustrated by the slow pace of reforms, and are beginning to leave for other emerging economies such as China or Vietnam.

The government appears to be heeding that warning. Mr. Vajpayee told economic ministers from 14 Indian states that the country cannot afford to be complacent in the face of the economic slowdown, and must move faster to implement economic reforms.

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