Why UN believes India should invest in its Infrastructure to Revive the Economy

India’s economy has been heavily hit due to the ongoing coronavirus pandemic and before the economy could recover the second wave has taken the country towards a roller coaster ride. The major cities in the country have been under lockdown in order to contain the virus. UN has recently mentioned that investment in infrastructure will help the Indian economy. Let’s look at how that is possible.

UN's Solution to India to revive the economy
Sectors Indian Government should prioritize
Deficit financing and the Public Sector
Economy of other countries
State of India’s Economy
Requirement for the Indian Economic Recovery
FAQ

UN's Solution to India to revive the economy

According to a UN expert, India has to heavily invest on its infrastructure if they want to recover from the widespread economic destruction faced by the country due to the coronavirus pandemic. The country will have to invest in infrastructure even if they have to go towards deficit financing.

Hamid Rashid who is the head of the UN Development Research Branch had conveyed in an interview to IANS TV on 12 May 2021 that, A crisis is always considered as an opportunity and an investment made at the right time in the right sector will create a multiplier effect in recovering the economy and also would make a substantial difference in the lives of people.

He added saying that seeing India’s condition right now would make us a little despondent but he conveyed that there is a silver lining in their view where he cited the opportunity for the public sectors to invest in vital areas and the signs of progress in containing the virus.

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Sectors Indian Government should prioritize

Hamid Rashid continues saying that developing countries like India do not have an option to finance a stimulus programme similar to the US but he added that the country can make proper investments through Public Sector in order to recover the economy.

He added that the Government will have to prioritize two major sectors health and digital. This is expected to be considered as an opportunity for the government and the Public Sector to increase their investments in the health infrastructure and digital infrastructure. This will create more jobs in the economy and in turn increase the demand for goods and services which will lead to the recovery of the economy.

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Deficit Financing and the Public Sector

In India currently, the shortage of oxygen is a huge constraint for India in order to save lives. This is an opportunity to create the right environment so that the businesses can invest more in building the healthcare capacities.

There is also a need to gaping the digital infrastructure in the country. The countries like India do not have an option to raise taxes in order to meet the infrastructure requirements of the country and hence will have to choose deficit financing. Deficit financing is basically borrowing money from the future.

Hamid Rashid has said that deficit financing is not a bad idea if the investments are made right. He added that deficit financing is not just necessary but it’s a must. When the businesses can’t take risks, when the private sector or the hospitals can’t take risks, then the only entity that can take risks is the Government.

So, he said that what we have seen crisis after crisis is Public sector Investments and these investments are the ones that brings countries out of the crisis.

He also added that with deficit spending one has to be very careful because if the amount is not invested properly then it would create a huge financial burden for the government and this debt balloon will increase over time.

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Economy of other countries

He had provided information about the Chinese and the Western economy. China had used investments for economic recovery. He added that the western side approach to fight against the coronavirus pandemic was through creating a demand side support by giving money to the households.

Whereas China had chosen to increase their investments during the pandemic and it led to the creation of more jobs and now the demand has been increasing and the economy of China has seen a recovery and is expecting a growth rate of 8.2 % this year.

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State of India’s Economy

Hamid Rashid’s branch is involved in making the economic forecasts which are used as a base for policy suggestions. The mid-year report which was released on 11 May 2021 has forecast that Indian economy would see a growth of 7.5% this year and would see a rebound of 10.3 % next year.

When the report was being prepared it was just the beginning of the second wave in the country and if the figures were recalculated right now the growth would be even less optimistic because of certain downside risks.

He added that there is still a huge opportunity for India for the recovery as they are just starting from a very low base. Last year there was a significant contraction of the economy and this is considered to be the recovering stage. If the pandemic is under control within a month according to assumptions then there would be chances for the growth.

If the Covid-19 cases increase for several months or for a full quarter then this target would seem very difficult and would see a downfall when the numbers will be updated. He said that if we remain optimistic then a 7.5 % growth rate is still possible.

Requirement for the Indian Economic Recovery

The most important element required for the recovery of the Indian economy is considered to be vaccination. This will increase the confidence of the consumers and the businesses as it is very vital for the recovery.

The news reports create a fear in the minds of people which stops the businesses to invest more as they will have a pessimistic approach and the consumers would not spend more as they feel that there are more bad days coming.

Hamid Rashid conveyed that this is about managing the expectations and the best way to manage the expectations of the people right now is by ensuring everyone gets vaccinated as soon as possible which will help in the recovery of the economy.

FAQ

Is India a mixed economy?

Yes, India has adopted a mixed economy.

What is the important sector of Indian economy?

Agriculture is the most important sector of Indian economy.

Is Indian economy growing or not?

India's economy is estimated to contract by 6.9 per cent due to the coronavirus pandemic.

Conclusion

Covid cases in the major cities have been reducing but there is still concern about the infections being spread to the rural areas. Vaccination, social distancing and other measures are expected to work even though it doesn’t create any magic but would help in containing the virus.