Proceeds from monetisation of assets must be invested, not used to retrench debt

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pension funds on the lookout for avenues of safe deployment with stable returns. The money the government gets from selling such an asset to a buyer at a decent price, it can put that money to building yet another highway or airport.

That would generate fresh investment in private enterprises that supply the cement, steel, earthmoving equipment and other material required for the new infrastructure project. These investments would crowd in yet more investment in meeting the demand generated by those who find employment in the initial state-promoted project and the additional activity triggered in those who supply to that project.

In an election year, such as the present one, this is vital. All the more so since growth had been flagging in India even before the Covid pandemic.

Now that the banks bad loan problem has been tackled, even if mostly by writing them off, banks are in a position to dole out large amounts of credit, provided there is demand for it. Fresh investment is required to create that demand.

So long as the growth generated by investing borrowed funds is higher than the cost of borrowing, that debt is sustainable, and the debt/GDP ratio would gradually come down. The imperative of producing growth in a slowing world and politics trump conventional economic wisdom, Mr Nageswaran.