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| Stimulus: better late than never | | | | For the sagging economy, finally there is a reason to feel good at. The fiscal stimulus package announced by the government on Sunday and the signal sent out by the Reserve Bank of India to banks on Saturday are much delayed but very welcome moves. The need of the hour is to stimulate the economy and to generate employment. To this end, the permission to the India Infrastructure Finance Company Ltd (IIFCL) to raise Rs 10,000 crores through tax-free bonds is a masterstroke. Like the Chinese government, the Indian government has said that the funds raised would support a public-private partnership programme of Rs 100,000 crores in the highway sector. The focus now should be on getting the bonds into the market as soon as possible as they are sure to be lapped up by investors waiting for tax free bonds. Second, the IIFCL, according to sources, is ill-staffed, and they should be able to use the right bank to get projects appraised and cleared without any delay. Most important, the ministry in charge of roads and highways needs a dose of adrenalin as there are complaints that it is not able to approve packages for road projects quickly enough. If the government wants to treat infrastructure projects on a war footing, which is very necessary at this point, it should tackle the issues and the people responsible for delays and see that projects are approved without delay. Also, there must be a mechanism to ensure that risks are shared and that banks are not the only ones to be saddled with risks. Public-private participation must be on an equal basis, and not on terms where the profits are for the private companies and the risks are borne by the banks. The stimulus package, on the face of it, appears to be all-encompassing and addresses the problems faced by the distressed labour-intensive sectors such as textiles, leather, marine products and the small and medium sectors. The Reserve Bank has also sent out signals to the banks that they should give loans to the housing and construction sector. The banks are expected to announce a package for home loan borrowers early this week. The big builders are, however, unhappy, but the government should not give in to this lobby as they have formed a cartel and decided not to bring down prices. They had created a huge bubble during the good times, and are now refusing to bring down prices even while complaining about a lack of demand. Unless they bring down prices by 50 per cent instead of the measly 10-12 per cent, and that too only in some areas, and trim their grandiose plans on the reality trajectory, the government and the banks should not entertain their requests. It is understood that they are trying to do what the crippled Big Three auto giants have done in the United States. One can only hope that the government does not fall into their trap. |
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