Recent governments, irrespective of parties, failed to see the distinction between economic trends and cycles. They continued with old mind-sets like those that prescribe a reduction in fiscal deficits and a cut in spending under all circumstances. Such policies, relevant during inflations but not at present, have only deepened the recession. A reduction in public expenditures on constructionand on infrastructure like roads, ports, electric power and on capital formation in public enterprise, has caused havoc in the cement industry all over the country, affected several other lines like steel, wood, glass and sanitary wares, to take just one example, and has thrown out of gear the banks and the non-banking finance companies and the mutual funds. An expenditure of, say, Rs 18,000 crore, spread over two fiscal years, on pay commission's awards, is just not good enough to reflate an economy with Rs 2 lakh crore of GDP in money terms. The prime need of the moment is to pull the economy out of its deep slackness, even if this means giving up the old mind-sets and allowing the fiscal deficit to increase from 5.5 to 6 or 6 to 6.5 per cent of GDP, or slightly more. As Government expenditures on capital goods and infrastructures increase and effective demand takes a surge, industrialists and businessmen, witnessing an offtake of goods and service and a fall in stocks, will immediately move to place moreorders to replenish the stocks and sell more. In a matter of months, the recession could be gone and then the government could shift back to the normal policies of looking after the trends. The upward trends will be nowhere in sight until the downward phase of the cycle, the recession, is taken care of.

The government could move quickly towards liberalising the building activity of the private builders, the corporate sector, the cooperative sector, the public sector and the government sector to begin to annihilate the slump. The Delhi Rent Control Act, whose failure in implementation is holding the whole country's building activity to ransom, owing to a stubbornness of the large and small tenants, must be dealt with immediately by striking a via-media between the interests of tenants and the owners. The house owners, taken together with those who are tenants as well as house owners and those tenants who can move to build their own houses and become owners, are a far larger interest group than tenants alone.Every house has an owner but only some houses have tenants. Reasonable rent increases, as provided in the Delhi Act, or some staggered modification of it, will lead to a surge in building activity, provide enormous employment and get rid of this and the future recession.

In the power sector, time has come for the central and the state governments to move faster to settle the financial arrangements and to move for quicker execution of projects. American firms and others in the power sector and oil prospecting, the Germans in highway construction, the French, the British and the Australian firms as well as Indian firms in many other lines, have developed a high degree of expertise and should be invited to work speedily and deliver the goods. Overground and underground railway lines in and around bulging cities like Delhi and commissioning of port construction, have to be taken up promptly. In any case, the need is to spend judiciously on capital projects and reflate the economy.

The banking sector hasdeveloped, no doubt, some important norms for efficient banking. But there is no point in repeating like so many parrots, phrases like, capital adequacy, non-performing assets and income sufficiency without realising that these norms must be tightened in an inflation and relaxed, within limits, during recessions; and the current phase is the time to instruct banks to relax.

For meeting this immediate need of lifting up the economy from the trough, the prevailing RBI policies of easy money and lower interest rates are correct and timely. The rupee is relatively stable at the moment, around 39-40 to a dollar. However, as the devaluations and depreciations of the far-eastern currencies and their price-dips of recent months become effective, India will experience sharp competitiveness in exports and the rupee will again witness a downward pressure.