Bank recapitalisation, infra push, SME boost good news for economy but may not revive private investment

It is not surprising that the government has come out with its perspective on the state of the economy and the way ahead at a time when there is a substantial debate on how the country is placed.

On one hand, the government has stated that the finances are in a very good state and that India remains one of the fastest growing economies in the world. But in the same breath, it is also involved in a discussion about fiscal stimulus and has been urging the Reserve Bank of India (RBI) to lower rates, which means that the government believes that something more has to be done to push growth, which may not be too satisfactory.

Two ideas have come out of Finance Minister Arun Jaitley's presentation on Tuesday to chalk out a future path. First, the government is in control over its own expenditure, and will hence work hard to ensure that money spent is productive. So far, the progress on capex by both the government as well as central PSUs has been on target as per the Budget outline which is encouraging. This is something the government has direct control over, which can make a delta to the growth process. Second, the government has outlined ambitious capex plans in sectors like roads, power, digital economy, railways and housing which will definitely provide strong backward linkages with the rest of the economy and related industries like cement, steel, machinery etc. will get linked. But this is more of a medium term strategy and is a continuation of the track already laid down by the government.