In an interview with CNBC-TV18, Mishra stated, “To expect that the government should use the very little resources that it has to take on the burden of stimulating the economy forever is, I think, inappropriate.”
Mishra highlighted the critical role of the private sector in driving economic growth. He noted that economic theory supports the idea that private entities can deploy funds more efficiently than the public sector. “The fact that the government is ceding space for the private sector is an important thing,” he said, adding that significant year-on-year growth in capital expenditure (capex) is still expected.
He pointed out that the central government’s scope for direct spending is limited to specific sectors such as national highways, railways, telecom, and major ports. While railways have seen increased allocations, expanding expenditure in these areas at a rapid pace is challenging.
Mishra explained, “You can’t go from ₹1.5 lakh crore to ₹6 lakh crores in three years. So, they’ve gone from ₹1.8 lakh crores to ₹2.5 lakh crores this year. Maybe they’ll do ₹3 lakh crores and then ₹3.5 lakh crores next year.” However, he noted inefficiencies in fund utilisation, with significant amounts lying unspent due to structural issues.
Discussing the housing sector’s multiplier effect on the economy, Mishra emphasised its importance in driving demand. He described the real estate sector as a significant component of a country’s capital stock, alongside infrastructure and factories. With the real estate cycle rebounding after a decade-long downturn, Mishra sees affordable housing as a promising area for government support. However, he cautioned that executing such programs at scale remains a complex challenge, even for countries with high state capacity.
Below are the excerpts of the conversation.
Q: How do we see the economy getting any help at all? Should we not expect it from the government?
Mishra: To expect that the government should use the very little resources that it has to take on the burden of stimulating the economy forever is, I think, inappropriate. The fact that the government is ceding space to the private sector is an important thing. We tend to just look at the government to keep spending but remember that what economic theory says is that the private sector can spend the same amount of money, much better than the public sector. Let us not forget that there will be significant growth year on year in capital expenditure, the cuts that we have seen on the CRR side—a lot of that has been offset by the rupee interventions, but there will be a multiplier on the ₹1.16 lakh crore. And so, as the money starts to come into the system, and hopefully the RBI will also ease macro prudentially and start to not be as restrictive on credit as it has been, one would assume that the growth numbers will start to come back.
Q: One of the problems appears to be the government has not succeeded in doing its capex budget. Sometime back, I remember you saying that it is not very easy to do expenditure. Maybe there is a bandwidth problem over there, they are just pushing the loans to the states and with conditions, and the states are not able to meet the conditions, so they are not spending. Should this whole capex bogie be stopped for now and look at revenue expenditure in some ways?
Mishra: As per the Constitution of India, the central government can spend on national highways, railways, telecom, airports, national ports, or the major ports. Major ports and airports, do not need much capex. Telecom, once the BSNL 4G capex is done, is ruled out. So, you are left with national highways and railways. How much capex can you do there? If you have 1,60,000 kilometers of national highways, if you are building 14,000-16,000 kilometers a year, in once in 10 years, you’ll need to relay the road; you can’t do more. Railways can absorb more, should be doing more, and it is starting to grow. But you can’t go from ₹1.5 lakh crore to ₹6 lakh crores in three years. So, they’ve gone from ₹1.8 lakh crores to ₹2.5 lakh crores this year. Maybe they’ll do ₹3 lakh crores and then ₹3.5 lakh crores next year. Where else will you spend the money? And this is why ₹2.1 lakh crores of this year’s spending, ₹1.5 lakh crore were the interest-free loans for capex to states. And about ₹64,000 crores is lying in the Department of Economic Affairs Budget. Some of it is at pre-commercial R&D. Some of it is side pocket stuff, which is, in case someone asks, we will give it to them. But this year, as people are struggling to spend what was given to them, that money may not be spent. So, it tells you that there is a serious issue with how much the central government can spend by itself, and therefore should it then plan different programs? Policy-making is about identifying problems and solving them. So is it that if urban infrastructure, where there is unlimited demand for infrastructure, the government creates programs and says that in the next one year, I am going to allocate ₹2 lakh crores to say the top 50 cities, and these are the programs. And if that were to happen, I think the absorption would be much better. So, it is about creating and designing those programs rather than just the scope at this point.
Q: Housing has an inherent multiplier impact. You think that that could be a thrust from the government. We do have a PM Awas Yojana, which gets a lot of mention in the budget. Can that be stepped up? I’m just looking for the big theme in the budget.
Mishra: Is real estate and housing a very important part of demand in any economy? Absolutely. When people think about capital stock, everyone obsesses with factories and capital investment in factories. Remember that capital stock in most economies is almost one-third, one-third, one-third, in terms of housing, infrastructure and factories. So, building this up, and especially given that the real estate cycle, after 10 years of downturn, is starting to turn up and stimulating that or supporting that with some affordable housing is a very good idea. How to execute that because, even countries with high state capacity, like China, have struggled with affordable housing, these are not easy problems to solve at scale.
Watch accompanying video for entire discussion.
