Only Govt spending can kick start economy: HSBC report

Mumbai: With over-leveraged corporates and stressed banking assets, the onus of getting the economy back on track has fallen again on an equally stressed government, says a report.The responsibility is to boost growth by increasing
only govt spending can kick start economy hsbc...
PTI January 18, 2015 14:01 IST

Mumbai: With over-leveraged corporates and stressed banking assets, the onus of getting the economy back on track has fallen again on an equally stressed government, says a report.

The responsibility is to boost growth by increasing spending and untangling stalled projects, said an HSBC report.

Quoting the Finance Ministry data, the report said during the September quarter of the current fiscal the gross capital formation has been zero compared with the 10-year average of 9 per cent.

As a percentage of GDP, GCF has fallen by over 4 per cent over the past five years, as there was hardly any capex both by the Government as well as corporates, it said.

“We find the Government could play a crucial role in crowding in private investment in three ways — getting the stalled projects restarted, increasing capital spending, and introducing a new workable model for public private partnerships,” HSBC India Chief Economist at its capital markets division Pranjul Bhandari said in a note.

“A 1 per cent GDP increase in the government's capex leads to an 110 bps increase in real GDP growth over a year-and-a-half, rising to a cumulative 170 bps over three years.

“On the other hand, a similar 1 per cent GDP increase in the Government's current expenditure leads to a smaller 40 bps increase in real GDP growth over a year and a half, rising to 70 bps in three years,” he said.

Stalled projects, over-leveraged corporates and stressed banking assets have kept the economy weak, putting the onus on the Government to crowd in growth by increasing spending and untangling stalled projects, it said.

This could be done in a fiscally disciplined way by switching spending from model, the note added.

There are a large numbers of stalled projects that have locked up resources in banks, thereby choking the way for new projects.

The report said half of the top 100 stalled projects, worth over Rs. 27 trillion, could benefit from the Project Monitoring Group.

According to the CMIE database, the top 100 stalled projects account for 93 per cent of all stalled projects in its records, with 66 per cent in the private sector, and the remainder in the public sector.

Industry representatives say 53 per cent of these projects are stalled due to delays in land acquisition and environmental and other clearances and raw material unavailability.

 
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