Leading economist Jeffrey Sachs 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 said here.
Undeterred by the concerns over the projected fiscal deficit of 6.8 per cent 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.”
The noted economist, however, cautioned against heavy, untargeted subsidies that bloat the country’s deficit and called for a sustainable financing mechanism for public investments.
“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 said people must pay for the cost of infrastructure investments and there should be proper government strategies to provide subsidy for the poorest, rather than extending it across the board.
Sachs also said India needed 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.
He credited the country’s large infrastructure backlog as one of the reasons for its “amazing” performance during the global financial crisis, when, for most of the world, 2009 was a year of incredible drama — economic collapse, banking failure, rising unemployment.
“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.
