Kick-start the Economy

Background Recession since 1996 Crisis in industry, banks, capital markets, exports New investments sluggish; employment growth less than 2%, core sector worst affected (capital goods, steel, cement, automobile) Government initiative and budget showed promising signs of recovery; but slow progress Banks have Rs. 1,00,000 crores surplus high cost deposits earning low returns Bank NPAs are rising due to failing businesses Banks not willing to lend to private sector due to a. Risk of more NPAs in recession b. Fear of CBI/inquiries in case of failure of any advance Purpose Kickstart/demand push is essential to revive industry Create employment Save Banking Industry Re-deploy surplus staff of PSUs into productive activities Gain recurring savings from infrastructure faster Methodology Massive and speedy government spending on infrastructure required. This will infuse purchasing power and business confidence leading to

demand/investments from private sector (Japan model) National Highways project (6,000 km) to be executed in 2 years

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 Split the project into 50 segments of 60-200 km each implemented by Special Purpose Vehicles (SPVs) promoted by Navratna/mini-ratna PSUs who have a. Technical & managerial expertise b. Debt leveraging capacity to borrow from Banks Each segment to be permitted collection of toll and sale/lease of advertising space, car parks, facilities, service stations, motels, shopping malls, etc. (all privatised) creating job opportunities Resources Expedite deployment of collections under Resurgent India Bonds (costly funds lying idle) Banks can immediately lend on long-term basis with extended moratorium to SPVs promoted by PSUs for infrastructure. The benefits are: a. No risk of corruption/fear of Bankers to lend to PSUs b. No risk of NPA (Government guarantee) c. Present NPA level will reduce as a percentage of total lending (which will increase) d. Large sums of money will flow into the market leading to demand for goods and services (jobs)- revive existing businesses and reduce NPA level further

Piyush Goyal Mumbai 12th June, 1999

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