PUBLIC VS PRIVATE INVESTMENT: WHO
WOULD DRIVE INDIA'S NEXT
PHASE OF GROWTH?
TAMAL DATTA CHAUDHURI
CALCUTTA BUSINESS SCHOOL
26.9.2015
A PRESENTATION MADE TO KIIT SCHOOL OF MANAGEMENT
(THE VIEWS OF THE AUTHOR ARE PERSONAL)
PROBLEM OF EFFECTIVE DEMAND
• THIS CANNOT BE SOLVED BY REDUCING PRICES OR RATE OF INTEREST
• WITH REDUCTION IN RATES OF INTEREST, ONLY INTEREST ON OUTSTANDING
LOANS CAN BE RENEGOTIATED
• FRESH INVESTMENT WON’T BE FORTHCOMING AS THERE EXISTS EXCESS
CAPACITY
• THE HOUSING SECTOR WILL BENEFIT
• THERE IS A DEMAND PROBLEM WORLDWIDE
• WITH CHINA SLOWING DOWN, THERE IS AN ADDED PROBLEM
• THE SAME REASON WHY THE US IS NOT INCREASING RATES
BALANCE
• MV = PY
.
.
.
.
• M/M + V/V = P/P + Y/Y
• MONETARISM VS. NON MONETARISM
• GIVEN THAT THE RATE OF INFLATION HAS GONE DOWN, WE CAN LOOK AT
INCREASE IN THE RATE OF GROWTH OF MONEY SUPPLY
• RBI GOVERNER HAS SAID THAT NOW THERE IS SOME LEEWAY TO CUT INTEREST RATES
• HE IS NOT DOING AS THIS WILL NOT SOLVE THE PROBLEM OF EFFECTIVE DEMAND
PERSPECTIVE
• C+S+T =C+I+G+X–M
• (G – T) = (S – I) + (M – X)
• AN EXTRAVAGENT GOVERNMENT CAN LEAD TO SOVEREIGN DEFAULT (GREECE)
• INDIA IS NOT IN THAT POSITION. WITH A PRETTY LOW FISCAL DEFICIT TO GDP
AND A COMFORTABLE FOREX RESERVES, THERE IS ROOM FOR GOVERNEMENT
SPENDING
OBSERVATION
• NPAS IN BANKS ARE A REFLECTION OF THE SLOWDOWN
• IT DOES NOT MEAN THAT THE BANKS HAVE BECOME RECKLESS
• IT IS EXACTLY THE OPPOSITE – IF NATIONALISED BANKS DO NOT PERFORM THEIR TASK
AS THEY ARE DOING TODAY – YOU WILL NOT SEE EVEN THIS GROWTH
• IN THE PROCESS IF NPAS ARE CREATED – THEN THE GOVERNMENT SHOULD
RECAPITALISE
• THERE IS A MORAL HAZARD ISSUE – THIS CAN BE HANDLED AT THE BOARD LEVEL WITH
PROPER CHECKS AND BALANCES
• WE HAVE TO RECOGNISE THAT GOVERNMENT IS A BIG PLAYER
• IT CANNOT NOW REMAIN A SILENT PLAYER
RECOMMENDATION
• WE NEED PUBLIC SECTOR INVESTMENT IN A BIG WAY
• THE ANNUITY BASED MODEL OF NHAI NEEDS TO FOLLOWED IN THE PPP MODE
• THE NEXT FIVE YEARS SHOULD BE RAILWAYS LED GROWTH
• NOT SERVICES LIKE CATERING ETC.
• WE ARE TALKING ABOUT RAILWAY LINES, BOGIES, SLEEPERS, ENGINES, MAINTAINANCE,
SIGNALLING, BRIDGES ETC.
• IT IS AN OPPORTUNITY WE SHOULD NOT MISS.
• THIS IS THE TIME FOR CORE SECTOR EMPLOYMENT GENERATION. NOT IT OR SERVICES LED
GROWTH
• THERE SHOULD BE POWER SECTOR GROWTH. THAT IS GENERATION.
• LET US DO IT AND THEN SOLVE THE TARIFF PROBLEM THROUGH SUBSIDIES IF
REQUIRED.
• THE EMPHASIS ON MANUFACTURING IS THE REQUIREMENT OF THE DAY
• GOVERNMENT HAS TO SPEARHEAD THIS
• THE PRIVATE SECTOR WILL FOLLOW
• THE PRIVATE SECTOR WILL ALWAYS BE INTERESTED IN VALUATION
• JOB CREATION HAS TO BE SPEARHEADED BY THE GOVERNMENT