Sudip Bandyopadhyay

Single largest problem facing India on its path towards economic glory is the lack of adequate infrastructure. Every aspect of Infrastructure in our country is decades behind the developed world and even our South-East-Asian neighbours. The pace of infrastructure development in the Gulf region and even the African countries is probably better than that in India. Every area of our economic endeavour – Agriculture, Industry, Services, etc. is suffering seriously due to the absence of adequate infrastructural support. There is a crying need for the government to take urgent steps in this direction. Massive infrastructure spending at this stage, will set in motion a huge virtuous economic chain reaction which should definitely benefit the overall economy significantly.

Indian saves 35 per cent of it’s GDP, amongst the highest in the world. A significant part of this saving however sits in Savings and Fixed deposit accounts with the Banks. Post the global financial crisis, the financial institutions have become extremely cautious in lending and the savings of the country lying in the banks are not being fully channelised to meet the requirements of the Industry and the country.Thus there is a huge wastage of resources through these idle funds which are not being put to use.

On the other hand, there is already a huge fiscal deficit of around 11 per cent and the government needs desperately funds for financing infrastructure and other developmental requirements. Any incremental government borrowings from the market would push up the interest rates and affect the economy adversely by creating fertile ground for increase in inflation.

Under the circumstances, it would be ideal if the government creates a separate investment category for individuals in the forthcoming budget which will enable individuals to invest may be upto Rs. 5 lacs in tax free infrastructure bonds to be issued by PSUs operating in the infrastructure areas. Such investment should get tax relief and the income on such investment should be tax free. This will surely channelise huge retail savings and enable government to create badly needed infrastructure without incremental borrowings from the market. There will be positive impact on the economy through increased government spending without jeopardizing the money market and affecting the interest rate or inflation.