The Finance Minister, Nirmala Sitaraman, said recently that India’s long-term growth prospects are embedded in public capital expenditure programmes. She added that an increase in public investment would crowd in (or pull in) private investment, thus reviving the economy. The Minister was speaking at the third G20 Finance Ministers and Central Bank Governors (FMCBG) meeting hosted by Indonesia in Bali.
Lag in investment
Public investment-led economic growth has a respectable academic pedigree, and forms a credible strand of explanation for India’s post-Independence economic growth. Here is an illustration. When it was faced with a slow-down after the Asian financial crisis of 1997, the Atal Bihari Vajpayee led-National Democratic Alliance government initiated public road building projects. In the form of the Golden Quadrilateral (to link metro cities using a high-quality road network) and the Pradhan Mantri Gram Sadak Yojana (to ‘provide good all-weather road connectivity to unconnected habitations’), these initiatives sowed the seeds of economic revival, culminating in an investment and export-led boom in the 2000s; GDP grew at 8%-9% annually.
