Should the govt. guarantee infrastructure projects?

Kaushik Basu now at WB as chief econ writes this paper.

He says the govts have become way too cautious towards providing guarantees for large mega infra projects. Well, there is one thing of providing guarantees carelessly and other thing of providing them with care and planning. He suggests second such kind of guarantee:

This paper investigates the role of fiscal guarantees in promoting infrastructure investment. Infrastructure is a critical driver of economic growth, but infrastructure entails significant up-front costs that yield benefits after a time lag. Investors hesitate to put their money down on private infrastructure ventures because of the long lag and governments do not give guarantees for reasons of fiscal prudence. The paper argues that governments and large investment guarantee agencies can in many situations give suitably-calibrated guarantees to private projects by exploiting the fact that a guarantee on one project can reduce the risk of another one failing. The paper works out the architecture of such guarantees, which can be fiscally prudent and yet boost investment, especially in infrastructure, and thereby promote growth.

The govt clearly has to play a huge role if India has to get even 50% closer to its planned investment in infra..

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