Economic Outlook, Prospects, and Policy Challenges

27

Source: Credit Suisse (sample of 3,700 listed companies).

Source: Bloomberg and J.P. Morgan.

Therefore, as emphasized in the Mid Year

Economic Analysis 2014-15 it seems imperative
to consider the case for reviving targeted public
investment as an engine of growth in the short run
not to substitute for private investment but to
complement it and indeed to crowd it in. The two
challenges of raising public investment relate to
financing and capacity. Financing issues were
addressed in section 1.6.
Public sector implementation capacity in India is
variable. But the analysis in chapter 6 of this volume
suggests that the Indian Railways could be the next
locomotive of growth. Greater public investment

in the railways would boost aggregate growth and

the competitiveness of Indian manufacturing
substantially. In part, these large gains derive from
the current massive under-investment in the
railways. For example, China and India had similar
network capacities in until the mid-1990s but
because it invested eleven times as much as India
in per-capita terms, Chinas capacity and
efficiency have surged (Figure 1.18). In contrast,
stagnant investment has led to congestion, strained
capacity, poor services, weak financial health, and
deteriorating competitiveness of logistics-intensive
sectors, typically manufacturing. Congestion has