Even as there are accusations that nothing much has moved on the ease of doing business since the government took office, Deutsche Bank in a report has said that the government should adopt a “do whatever it takes” stance to revive investment momentum.
The report, however, says that any such action should be within “sensible” fiscal bounds.
HOW TO ACHIEVE THIS?
The report advocates that the Narendra Modi government unequivocally signal its medium-term commitment to reviving stalled investment momentum, through increasing capital expenditure in critical sectors like roads, railways, irrigation and defence.
WHAT WILL THE FISCAL IMPACT BE?
Deutsche Bank argues that the fiscal room to finance capital expenditure can be created by:
* Reform in delivery of subsidies
* Re-orienting incremental expenditure from revenue to productive capital expenditure
* Harnessing commodity dividend, particularly oil prices
SOVEREIGN RATINGS & MACROECONOMY
As long as there is demonstrated strong political will to reform subsidies and plug leakages, a medium-term increase in capital expenditure would not be viewed adversely by rating agencies or even the RBI, Deutsche Bank said. Further, a stable investment environment will make India stand out among emerging economies.