India faces the challenge of boosting spending on productive assets that aid economic growth after being forced to direct the bulk of stimulus last year on the poor and the farmers to protect them from a pandemic-induced slowdown. Citigroup economists wrote last year that spending should be directed on infrastructure, rather than populist measures, to cushion the economy headed for the deepest slump among emerging nations.
Attracting foreign investment is also crucial to meet Modi’s goal of spending $1.5 trillion on new roads, rail links and other infrastructure over the next five years as public finances deteriorate.
The government pumped nearly Rs 1.7 trillion into public sector banks in the two years to March 2020. But a widening budget deficit and weak revenue growth put a brake on any further recapitalisation plans for the current financial year.
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