No policy steroids needed

The other issue that the government needs to address, although not necessarily in the budget, is the massive rise in the indebtedness of large infrastructure companies. Banks have been restructuring these loans at a rapid pace in the last six months, but that isn't solving the funding rut. Underlying the rise in the infrastructure credit and liquidity risks are corporate decisions taken in 2007-08 on assumptions that turned out to be terribly wrong, including continued underpricing of tariffs. We can say these corporations and banks went into the loan agreements with their eyes open and should pay for it. But that won't get infrastructure investment going. We haven't developed a sufficiently strong line-up of second-tier infrastructure companies who can take the ball and run on their own, while foreigners remain daunted by local business conditions. The government or the RBI will eventually need to get involved in the debt restructuring with their balance sheets. The sooner we accept this, the quicker the investment cycle can restart.

Last, allocations for the courts and law enforcement need to be raised substantially. India spends (both as a share of the GDP and per capita) very little on its courts and law enforcement bodies. Much of this is the responsibility of the states but as in the case of urban renewal, there is clearly space for the Central government to help out. The recent public outcry over legal reforms is unlikely to change things if we do not provide the courts and police with adequate resources. Justice, as they say, has a price.

The writer is senior Asia economist at JP Morgan Chase. Views are personal

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