More strong steps are coming for economy, says PM

Nachiket Kelkar, HT, 24 Dec 2016, PATALGANGA: Prime Minister Narendra Modi said on Saturday that his government would continue “strong and prudent” economic policies and explore new funding arrangements for infrastructure projects, indicating mounting political opposition to the scrapping of high-value currency would not dent his plans.

Speaking at the inauguration of a new campus of the National Institute of Securities Market at Patalganga near Mumbai, Modi said his government would not take short term decisions for political points.

“Demonetisation is short term pain, but will bring long term gains,” he said, with finance minister Arun Jaitley in attendance.

He also hinted at new measures such as tapping bond markets for financing infrastructure projects. “Our markets should show they are able to successfully raise capital for projects benefiting the vast majority,” he said.

Hours later, Modi laid the foundation for a mid-sea memorial near Mumbai to 17th century king Shivaji that is set to be the tallest statue in the world. The Maratha icon is revered in Maharashtra and the BJP is hoping to gain political mileage out of the controversial Rs 3,600-crore project ahead of the crucial civic polls in Mumbai.

Addressing a public rally afterwards in the city, the PM also laid the foundation stone of various infrastructure projects worth more than `100,000 crore.

The PM’s strong remarks on the economy come amid rising opposition criticism of his decision to recall Rs 500 and Rs 1,000 notes that has seen millions line up outside banks and ATMs and triggering a nationwide cash crunch.

The move announced on November 8 has reduced cash with the public, with latest RBI data showing that the quantum fall since April is over 50%, even as the government invalidated almost 86% of the total currency in the economy. Many opposition parties have accused the PM of hurting the poor, small traders and farmers as political tensions rise ahead of state elections early next year.

Modi’s hint at new measures to fund infrastructure projects as access to finance from traditional sources has got more difficult because of the long-term nature of these schemes.

“Today most infrastructure projects are financed by the government or through banks. Use of capital markets for financing infrastructure is rare,” he said.

Public-private collaboration to finance projects has also been hit as private players have been unable to raise more funds. Drawing on the model used in developed countries, Modi pitched bonds for this. “We don’t have a liquid long-term bond market. My call to you is to find ways to enable the capital markets to provide long term capital for infrastructure. Today, only the government or external lenders like World Bank or JICA provide long term money for infrastructure. We must move away from that. Bond markets must become a source of long term infrastructure finance,” Modi said, adding that municipal bonds could be an option.

Municipal bonds, as the name suggests, are issued by local state bodies to raise funds for large infrastructure projects.

While Jaitley only spoke about the near-completion of the goods and services tax exercise, Modi indicated the likely direction of the Budget by hinting at taxing market gains.

“For various reasons, the contribution of tax from those who make money on the markets has been low. To some extent, it may be due to illegal activities and fraud. To some extent, it may also be due to the structure of our tax laws. We should consider methods for increasing it in a fair, efficient and transparent way,” he said.