Cabinet approves massive Rs 9 lakh crore boost for economy

New Delhi: In an attempt to give a push to economic activity across the country, the Union Cabinet on Tuesday approved a Rs 2.11-lakh crore recapitalisation programme of public sector banks to increase their lending capacity and gave its nod to a major road-building project, Bharatmala Pariyojana, involving an investment of Rs 5.35 lakh crores to build 34,800 km of roads and highways.

Overall, the government is launching an umbrella road-building programme involving a capital expenditure of Rs 6.92 lakh crores to build 83,677 km of highways in the next five years, that also includes Bharatmala Pariyojana.

After GDP growth dipped to 5.7 per cent in the first quarter of the current financial year, there was a need felt in government circles that some steps were urgently needed to push economic growth. A series of meetings were held within the government, involving the PMO, to finalise measures which could help growth.

The government is also under attack from the Opposition, which has alleged that it has mishandled the economy through the hasty rollout of the Goods and Services Tax and demonetisation of high-value currency notes late last year. Several international agencies like the IMF and Asian Development Bank too have downgraded their GDP forecast for India for 2017-18.

Finance minister Arun Jaitley said that though after demonetisation banks had resources, they could not lend due to the lack of capital adequacy caused by the huge non-performing assets on their balance sheets.

“Today, at the Union Cabinet meeting, it was decided that the government should take a bold step to address this problem and Rs 2.11 lakh crores is the capital that is intended to be now indicted further in the banks. This will be accompanied by a series of banking reforms,” the finance minister said, flanked by all five secretaries in the ministry and the chief economic adviser. He said more public spending was required, and infrastructure expenditure would get an unprecedented push.

“When you give such a big push to infrastructure, it helps in job creation. And job creation is the intention to push private sector investment and MSME funding,” he said.

In India, banks are the main source of funding for companies but bad loans have shrunk their profits and choked off new lending, specially to smaller firms, and this has hit job creation.

Bharatmala Pariyojana is expected to generate 14.2 crore mandays of jobs to build 34,800 km road and highways in the next five years. The government said Bharatmala work had been proposed for completion in five years by 2021-22 through the NHAI, NHIDCL, MoRTH and state PWDs.

It said that for Bharatmala Rs 2.09 lakh crores would be raised as debt from the market, and Rs 1.06 lakh crores of private investments would be mobilised through PPP and Rs 2.19 lakh crores would be provided out of accruals to the Central Road Fund and NHAI’s toll collections.

“The focus is rightly on infra spending given the need for pump priming by the government as private sector investments would still take some time to pick up,” said Ranen Banerjee, partner at PwC India.