The economic survey correctly identifies rapid growth as the solution to mass poverty and unemployment, and the best antidote for dwindling government revenues and a deteriorating fiscal situation. Itfurnishes some answers--cutting government expenditure, increasing efficiency in the infrastructure sector, and earmarking funds from provident funds for infrastructure. It also makes the crucial acknowledgment that high exchange rates have hindered export growth. But all this has been said before, without making any difference. In fact, Chidambaram's budget last year had tried its level best to kickstart the economy, but the combined effects of tax cuts as well as higher demand through the Pay Commission's largesse proved insufficient to boost business. Hence the vociferous demand this year for more pump-priming, in the shape of stepped up government investment.

It is true, of course, that raising government plan expenditure will result in increasing demand in those industries which have been the worst affected by the economic slowdown, such as cement, steel, and capital goods. This will also "crowd in " private investment. But merely hiking government plan expenditure while keeping the fiscal deficitwhere it is is not going to help increase demand. Instead it will be a mere sectoral reallocation of resources. For pump-priming to occur, the deficit has necessarily to increase. And raising the deficit is fraught with risky consequences--the real rate of interest continues to be very high, hurting the competitiveness of industry. The approach which may be taken by the government is to adopt what it calls a "pragmatic and flexible " currency policy. There are indications that this is already happening, and the hullabaloo which attended the rupee's depreciation at the beginning of the year is absent.

Allowing the currency to depreciate has several desirable consequences--it enhances the competitiveness of our exports, it generates more revenue in the shape of customs duties for the government, and it is also a non-controversial way of ensuring protection for domestic industry. On the other hand, depressed international commodity markets will take some of the sting out of more expensive imports. In theshort run, therefore, a policy of pump-priming, coupled with a depreciation in the value of the rupee, as well as proactive policies to attract foreign investment in infrastructure, may well work. Add to that the announcement of measures such as allowing buy-back of shares and reduction of capital gains tax to uniform levels for domestic investors, and the combination of a buoyant market with higher public sector spending could well revive the economy. However, that is not a long-term solution. There is a school of thought that argues that the current downturn is not cyclical, but structural.

The effect of liberalisation was camouflaged by cheap money made available by the stockmarket boom, easy access to international finance, and a pent-up demand for consumer goods. With the influence of these factors waning, domestic industry realises that it has no alternative but to restructure, and cost-cutting has been very much in evidence in most corporate balance-sheets. It is this process of becoming moreefficient that will in the long run help Indian industry more than pump-priming. But much depends on government policy. If the cost of power is high, if real interest rates are high, if ports are jammed, and if redeploying the assets of sick companies takes ages, private initiative alone cannot do much. It is absolutely essential, therefore, to entice foreign investment into infrastructure, and the budget can send out the right signals. And so far as raising efficiency is concerned, privatisation is the best way out. Changing restrictive laws should also be high on the agenda. But the fact remains that business confidence is also contingent upon political stability, and there are no signs of any improvement on that front.