India’s healthy debt to GDP ratio has created scope for raising investment funding for ‘National Infrastructure Pipeline’ through borrowings from overseas markets.
According to Sanjay Aggarwal, President, PHD Chamber of Commerce and Industry, although, early signs of recovery are visible from the recent data on economic and business indicators, the need of the hour is to put the policy attention on refuelling consumption demand in the country to regain the lost growth momentum.
“Since the lockdown caused by Covid-19 in the month of March 2020, Government has very well addressed the investors’ and the industry’s sentiments, the focus should now be on fuelling consumption growth, which is one of the key engines of economic growth,” Aggarwal was quoted as saying in a PHD Chamber statement.
“At this juncture, the next stimulus package should prioritise demand creation measures to attain a positive growth trajectory in the later quarters (Q3 / Q4) of this financial year 2020-21.”
Besides, he said that demand creation will have multiplier effects on the other sectors of economy including enhanced production, increased investments and employment creation.
“The increased spending on infrastructure will give a multiplier effect to rejuvenate the aggregate demand in the economy and to mitigate the daunting impact of Covid-19 on the economy,” said Aggarwal.
Undoubtedly, the robust growth of infrastructure is the key ingredient to realise the vision of $5 trillion economy by 2024-25 and to become ‘Atmanirbhar Bharat’, he cited.
Investments in infrastructure will have a multiplier effect on the economy as there is a high correlation between the two.
“So, Rs 111 lakh crore investments in the infrastructure will certainly boost the growth trajectory of the country and take the size of the economy to the level of USD 5 trillion by 2024-25,” Aggarwal said.
“We have a significantly better external debt to GDP ratio at 20.6 per cent as compared with 95.2 per cent in USA, 83.5 per cent in Japan, 301.8 per cent in UK, 230 per cent in France and 119.6 per cent in Canada,” he said.
At this juncture, he suggested the government can consider raising investment funding for the NIP through borrowings from overseas markets by the issuance of overseas bonds through an SPV that could act as a mega ‘Development Financial Institution’ – (DFI).
“The DFI could initially finance public sector infrastructure investments, and, as the economy picks up steam, could also finance the private sector infrastructure projects,” Aggarwal said.
In the past, governments around the world have often used DFIs to fund industrial and infrastructure investments.
“Financial as well as technical support extended by DFIs would also help in efficient and timely infrastructural development in the country,” he said.
“Overseas borrowing will allow the government to bring in diversification in its borrowing along with significantly reducing dependence on the domestic market, thereby leaving room for private sector to raise capital for investments.”