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Continuing with the line of thinking articulated in his Mid-Year Economic Analysis 2014-15, Chief Economic Advisor Arvind Subramanian, in the Economic Survey 2014-15, made a strong case for increasing public investment to drive economic growth in the coming years.
The Survey says a combination of factors is likely to contrain private investment in the short run. These are a highly leveraged corporate sector, a stressed banking system and problems with the public-private partnership model in infrastructure.
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Thus, in the short run, the burden of reviving the investment cycle is with the public sector. Over the years, private investment has mirrored the macroeconomic peaks and troughs, while public investment has remained relatively steady.
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The challenge is to identify the sectors in which greater public investment is likely to have the highest return. The Survey says similar to the impetus for road building provided by a previous (1998-2004) government, the current government should, with reason, turn its attention to railways.
There is a strong case for channeling resources to transport infrastructure, it says, given the wide spillover effect -- linking markets, reducing a variety of costs, boost to agglomeration economies and improvement to competitiveness. Especially in manufacturing, which tends to be logistics-intensive, the Survey states.
Indian Railways (IR) has considerable linkages with the larger economy and investments made here will yield far greater returns, it says. Adding that an increase in railway output by one unit will increase output in the economy by five units. "This large multiplier effect has been increasing over time, with the effect greatest on the manufacturing sector. Thus from a 'Make in India' perspective, investing in railways is likely to yield far higher dividends."
