World Bank chief economist Justin Yifu Lin on Friday, noted that by investing in the bottlenecks of the country like infrastructure, India could see pick up in demands, especially in the face of current crises, which would pave the way for a longer-term growth.
?Lin also pointed out that the monetary policy should be such that to reduce interest rates and increase money supplies, so as to spur demand. If money is invested properly, it wouldn?t lead to inflation and higher rates. Investment in infrastructure could revitalize manufacturing in India, which accounts for only 16% of the country?s total output, and contribute significantly to job creation,? said Lin who was addressing a press conference in Mumbai
?The potential impact on productivity and growth could be a strong contribution to India?s development,? he added.
?If India can use this opportunity well to invest in most kinds of bottlenecks, you can create demand, generate jobs, thereby creating a growth rate of 5-6%. India may have an opportunity to maintain a 9-10% growth,? he said.
He also strongly advocated that India use forex reserves worth $250 bln to fund infrastructure bottlenecks, as deflationary trends are now seen.
Lin has also proposed that developed countries around the world invest a share of their stimulus plans into infrastructure projects in developing countries. He feels excess capacity in developed nations is the root cause for the current crises and says these economies should transfer their resources to developing countries, in infrastructure projects. ?Developed nations should not adopt protectionism,? he warned. As the effects of three consecutive crises, food, fuel, and financial hit poor households across the developing world, Lin noted that another of India?s defenses against the current situation is its existing social safety nets, such as the National Rural Employment Guarantee Scheme.
?While India has faced some deterioration in public finances due to low revenue collections, tax cuts, and additional expenditures; the country holds sizable foreign reserves and could leverage them to invest in infrastructure,? noted Lin adding that skillful economic management could reduce the impact of a protracted crisis on the economy.
Explaining his ?beyond Keynesian? argument, Lin said that policymakers should factor in the expectations of citizens, many of whom will assume that tax cuts and spending today will have to be paid for later. Anticipating that they might face higher taxes in the medium- to long-term many taxpayers are likely to spend less now, mitigating the fiscal stimulus? goal of pushing up total demand.
?Making fiscal stimulus plans work by releasing bottlenecks to growth in developing countries offers a potential win-win solution,? said Lin as such infrastructure investments will not only increase demand in developing countries, but also their growth, and government revenues, which in turn will enhance overall global demand.
By rendering a helping hand to India, the World Bank is assisting the country by offering $14 billion worth loans and credit for three years, including $3 bln, on request, starting from 2009 to 2012.
A special package worth $400 mln is being offered to SIDBI, $1.2 billion for IFC and $1 bln for PowerGrid to expand power in the country.