Prime Minister Manmohan Singh said today that the government would undertake large-scale public expenditure in infrastructure, both physical and social, to sustain domestic demand and beat the blues of a powering down of the Indian economy.
This, together with copious fund flows from multilateral financial institutions such as the World Bank and the Asian Development Bank, can act as a “counter-cyclical” measure and stabilise the global economy, now reeling under an unparalleled credit crisis. Singh had yesterday told leaders of 45 European and Asian countries at the Asian European Summit in Beijing that India, China and other emerging market economies can stave off a global recession if such funds are made available at the earliest without any major strings attached.
Singh’s prescription to pump-prime the economy, that takes a leaf from Keynesian economics, comes as the private sector in India has started feeling the pains of the global crisis and may not be able to invest substantially to sustain the growth momentum. In a conversation with reporters on board the special aircraft on his return from the summit, he said as much.
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“I think we are in a typical Keynesian situation where there is a lack of demand — private sector demand is very weak, but, strong government demand, both for social services and for physical infrastructure, will provide the essential stabilisers that our country needs in a time like this,” the Prime Minister said. While this may put some additional pressure on government finances, Singh seems to be willing to make a compromise.
Proud that the world was eager to hear India out on all global issues, Singh said he was not sure how long the domestic economy would face the wrath of the credit tsunami that originated in the US and Europe. “The crisis is not of our making. It (how long the crisis lasts) depends on how long it takes the world community to restore confidence in global financial markets,” he said.
Significantly, India and China seem to have closed ranks in putting across Asia’s concerns and ideas as the world looks at tightening the regulatory and supervisory framework of the global financial system. Both Singh and China President Hu Jintao are actively considering US President George Bush’s invitation to be part of the Group of 20 emergency meeting on the crisis on November 15.
Singh said, “I discussed this issue with Chinese President Hu Jintao. Both of us agreed that this is a crisis in which India and China should remain in contact and even work with like-minded countries to find pragmatic solutions to the problems that have arisen. But I will take a final call after discussing this with my colleagues when I go back.”
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Expressing regret that Ratan Tata had to pull out of his Nano car project from West Bengal, Singh said, India has to industrialise to find solutions to its employment or development problems, but added this cannot be on the back of poor farmers. “There should be an increasing attempt to reward farmers appropriately, also perhaps giving them a stake in enterprises which come into existence on the land acquired,” he said.
The rehabilitation policy and the Bill to amend the Land Acquisition Act is already pending in Parliament. “I would like that this is not an issue which should create friction and division among parties, because India must industrialise to realise its destiny,” the Prime Minister said, adding farmers should be given remunerative compensation wherever land is acquired.
At the last leg of his present tenure, Singh defended the administered pricing mechanism for fuel products and the below-the-line accounting for oil bonds. “The situation has been such that oil prices shot up in a manner that if I had passed on the whole burden to the people at large, there would have been reckless inflation. That would have been far more counter productive,” he said.
Singh, who championed reforms in 1991 as the Finance Minister in PV Narasimha Rao’s government, said, reforms cannot take place in a political vacuum. “We would have liked to do a lot more. But I think politics is the art of possible,” he added.
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‘I hope we can find ways to work with Left’
Replying to questions, the PM said:
• Elections will be held on schedule.
• I beg to differ (with the Left) — strengthening India’s banking, insurance systems enabled us to deal with the crisis more effectively. But I am not very happy to part company with our Left colleagues. In my view, India is faced with difficult problems. All parties committed to secularism and nationalism must work together to deal with communal and regional divide sought to be created by some anti-social elements. I very much hope we can find ways and means to work with our Left colleagues.
• Don’t link terror with one religion. I am very sorry that such a feeling exists (that action is taken against only one community). Those who have read the newspapers about Malegaon and others, I think, will consider this a one-sided view.
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