India: Is a cash injection on the horizon?

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India’s economic growth is beginning to slow.

A possible solution?

$7.7bn stimulus

Making it easier for consumers to borrow could revive India’s services industry, and extending credit to the country’s cash-starved medium-sized businesses community would be welcomed. Then there’s planned infrastructure investment. All of these measures will provide jobs for India’s soaring population.

One debate currently raging is who should get more? Consumers, business or infrastructure?

Don’t get too excited

Whilst India’s Finance Minister, Arun Jaitley, hasn’t dismissed the idea of a cash injection, don’t expect the government to go crazy.  

He’s called for more private investment. He also wants India’s banking sector to reduce its debt so that it can support any stimulus.

Other factors

India has Asia’s biggest budget deficit, and the government is under pressure to stick to its reduction target.

There’s too many loss-making infrastructure projects.

Then there’s the monetary reforms and a new Goods Service Tax. These policies will decrease government revenue this year as they bed in.

And don’t forget India’s credit rating: its debt has the lowest investment grade rating. If any proposed stimulus adds to India’s financial woes, we could see a debt downgrade to junk status. It’ll be more expensive for the country to borrow and may lead to an investor exodus.

Beware

With the general election on the horizon, expect to see some kind of government initiative soon.

But as one analyst warns, Indian stimulus packages usually “end in tears.

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