Three, open credit channels. For the problem of ensuring that the money market — that is, the market for short-dated bonds — works well, or for the problem of enabling PPP infrastructure projects, a critical bottleneck is a properly functioning bond market. The path to make the bond market come about has been mapped out by the Patil, Mistry and Rajan reports. This requires implementation within weeks and not months. The problems that we have seen with mutual funds, the money market, NBFCs and real estate companies are closely related to issues of financial sector regulation. When external shocks were juxtaposed with segmentation in Indian finance, this led to an acute crisis. In coming months, all firms, small and large, are going to face adverse shocks. A well-functioning financial sector is critically required, for providing the better firms with equity, debt and financial engineering through which they can ride through the crisis. It is important to remove the regulatory hurdles that prevent credit from flowing smoothly.

Four, limited scope and capacity for fiscal expansion. Chinese-style plans for vast infrastructure expenditure are inappropriate for India. The fiscal space is lacking, and there are multi-year delays from thought to execution. However, increasing infrastructure expenditure is feasible and desirable for ongoing projects. In areas like the NHDP or the Bombay-Delhi freight corridor, where mature institutional structures are in place, existing expenditure programmes can be accelerated. Policy-makers need to work on ensuring that these programmes work well in the sense of using money efficiently and increasing the pace at which projects are executed.

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