The government’s newly announced stimulus package offers a mixture of measures: budgetary, monetary and credit-linked. Additional expenditure is proposed on a large number of infrastructure schemes. The emphasis is on stimulating the market by supporting public-private partnership (PPP) initiatives, which means that private infrastructure companies will raise finance for viable projects from banks. The budgetary deficit also will be met; it appears, only by borrowing. The danger is that when money is already tight for private businesses and banks and investors are choosing to put funds in less risky government bonds, additional government paper in the market and recourse to printing money may become necessary. This can be minimised (and political damage too) if such financing is permitted for a very short period only by making its continuance contingent on the performance of the economy against some select reliable independent indicators of growth.

The stimulus package also does not take note of the gaps in Indian statistics and the absence of an adequate support system for the most vulnerable sections. We do not have reliable data on job losses and of the performance of the small and unorganised sector. Can we devise some means of rectifying this gap in benefits and data? The labour ministry and the small and medium enterprises ministry should consider ways to tackle this problem about which we have little data at present.

The stimulus given to the housing sector must be fine-tuned to the special needs of our country. Exercise demands are being made by associations of real estate developers. The housing sector in India has been less affected by bad lending and we should not introduce measures that encourage imprudent lending beyond the capacity of borrowers, as was done in the West. Interest rates need not be especially manipulated or laid down for this sector as interest rates are in any case falling for all sectors. Tax benefits should however be given for interest (not principal) payments and ceilings on such benefits could be removed to enable borrowers to meet their loan commitments since their jobs and salaries are at stake today.

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