Asharp deterioration in the GDP growth rate has led to concerns about the state of the economy.
There are differences of opinion about the cause of decline: is it structural or cyclical? However, there is consensus that prompt, concerted policy action will be required to try and turn the situation around.
One of the key problems is lack of investment by the private sector. This is especially apparent in infrastructure sectors where there has been a contraction in private activity. This is due to, among other things, the build-up of a large quantum of non-performing assets that has made it hard for the sectors to access funding. Many projects have been stalled while others have not gotten off the ground at all.
Investment by the public sector could compensate to some extent for diminished private activity. However, public finances are also stretched at the moment. Low GDP growth has meant low tax collections and higher fiscal deficits, for both the central and state governments. In addition,
the goods and services tax, which was implemented in July 2017, is yet to settle down as a tax mechanism.
This makes it difficult for the government to finance projects. However, despite these challenges,
policymakers need to find ways and means to undertake counter-cyclical action. Stimulating activity
across infrastructure sectors is one time-tested way to turn an economy around.
Besides directly investing in infrastructure, the government needs to review policy in most areas. The impediments to investing in infrastructure creation and provision of infrastructure services are well known and long-standing.
To name a few persistent issues, it is hard to acquire land for projects and it is hard to acquire financing at a reasonable cost. It is also hard to acquire the necessary clearances for any given project or even right of way in projects where this is necessary. There is often litigation because policy is unclear or changed arbitrarily, or documents are drafted in ambiguous language.
These are all issues that must be adequately addressed to stimulate activity across infrastructure
sectors. This requires a review of overarching concerns across the entire infrastructure space to speed up land acquisition and clearances, and smoothen access to finance for infrastructure
creators and providers.
Every crisis is also an opportunity. This slowdown offers policymakers a chance to directly address issues that have been allowed to persist for far too long.