Prime Minister Manmohan Singh said today that the government would undertake large-scale public expenditure in infrastructure, both physical and social, to sustain domestic demand and beat the blues of a powering down of the Indian economy.

This, together with copious fund flows from multilateral financial institutions such as the World Bank and the Asian Development Bank, can act as a “counter-cyclical” measure and stabilise the global economy, now reeling under an unparalleled credit crisis. Singh had yesterday told leaders of 45 European and Asian countries at the Asian European Summit in Beijing that India, China and other emerging market economies can stave off a global recession if such funds are made available at the earliest without any major strings attached.

Singh’s prescription to pump-prime the economy, that takes a leaf from Keynesian economics, comes as the private sector in India has started feeling the pains of the global crisis and may not be able to invest substantially to sustain the growth momentum. In a conversation with reporters on board the special aircraft on his return from the summit, he said as much.

“I think we are in a typical Keynesian situation where there is a lack of demand — private sector demand is very weak, but, strong government demand, both for social services and for physical infrastructure, will provide the essential stabilisers that our country needs in a time like this,” the Prime Minister said. While this may put some additional pressure on government finances, Singh seems to be willing to make a compromise.

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