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.

The government of Manmohan Singh has triumphed beyond its supporters’ wildest expectations . The results also promise political stability and create space for serious security and economic policy initiatives. It is hard to imagine a more benign outcome for the country, south Asia and world affairs.

The results will be widely read as a sign of national renewal, signaling a retreat of parochial political noise.These elections redeem an inclusive view of India. More broadly, the results reveal Indian democracy’s ability to push back against three profoundly centrifugal forces that have made big advances over the past three decades: caste-based populism; sectarian revivalism; and regional parties with a habit of holding the national interest hostage.

India’s economic downturn and security dilemmas require political stability and national resolve. Whether that is why the electorate produced such an unexpected verdict in favour of Congress alliance remains unclear, but the election results will certainly take India in that direction.

The outgoing coalition of 13 parties (until last year with external Communist support), got gridlocked on reform. Economists and stock market pundits in India’s financial capital could hardly believe the election result, which seemed tailor-made for investors. In contrast to their fears that the election would deliver an unstable coalition dependent on India’s reform allergic leftwing parties, investors are looking at what promises to be a stable government based on one of the large national parties. They now will want the government to unveil a medium term fiscal strategy that shows the ballooning budget deficit, estimated by economists at over 12 per cent of gross domestic product in the year ending March 2009, gradually being brought back under control. Mr. Singh now has a mandate for change; above all there is urgent need to privatise, reduce barriers to investment and remove wasteful subsidies that are crippling public finances. He will also be better placed to pursue détente with Islamabad at a dangerous moment for Pakistan.