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  3. Government spending can kick start Indian economy: HSBC report

Government spending can kick start Indian economy: HSBC report

19 Jan 2015 Evaluate

The HSBC, in its latest report, has highlighted that the onus of getting the economy back on track has fallen again on government as the domestic corporate are over-leveraged, while banking industry have gripped with the NPAs issues.

The report further added that during the September quarter of the current fiscal the gross capital formation (GCF) has been remained zero as compared with the 10-year average of 9 percent. Further, GCF has fallen by over 4 percent of GDP over the past five years, as there was hardly any capex both by the government as well as corporate. HSBC India Chief Economist Pranjul Bhandari asserted that the government could play a crucial role in crowding in private investment in three ways such as getting the stalled projects restarted, increasing capital spending and introducing a new workable model for public private partnerships. 

By adding further, he stated that 1 percent 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. Conversely, a similar 1 percent 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. The report further added that half of the top 100 stalled projects, worth over Rs 27 trillion, could benefit from the Project Monitoring Group.

After registering an average growth rate of 8% during FY08-FY12, Indian economic growth had slowed down to below 5% over the last two financial years. The factors like high interest rate and stubborn inflation, low investments and slow execution of infrastructure projects have impacted country’s economy growth. However, the domestic economy has shown signs of nascent recovery and expanded at 5.5% during H1FY15 as compared to 4.9% in the same period of previous fiscal. 

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