Part 4: what India/World could do to avoid deep recession?

Continuing on the above theme,

1. Measures by and large cannot be ad hoc but must fit in with each country's overall medium and long term priorities. Government in India would be well aware of the difference between urban and rural sector. One key difference is in different propensity to consume- being generally higher in rural/poorer sections or in more labour intensive sectors. Hence govt must speed up spending in rural sector- rural infrastucture and within rural infrastructure on rural roads. Th e reason is higher conumption propensity in rural areas would have higher income multipler effect while accelerating rural road connectivity would have high productivity impact ( as shown by World bank study comparing productivity impact of different forms of infrastructure like road, education, water ,heath etc) .

2. Much of urban infrastructure is in form of neutralizing rather than positive infrastructure- comes up to correct unmet demand, congestions etc and addition of these in urban areas has negative externality as such infrastructure may be accelerating rural -urban migration accentuating such problems. Taking a medium and long term perspective, it is high time that a more proactive effort to develop many more villages and small towns in to complete model involving partnership with private sector. The complete package involving provision of new forms of energy supply, housing and other solutions that is possible in relatively uncongested scenario with public private partnership will have a salutory effect on real estate sector if action is taken fairly quickly, on stock markets, environment, quality of life etc while providing a substantial boost through income multipler effect that is likely to be stronger in rural and semi urban areas.

3. US problems are compunded by its high rising fiscal deficit. However if President elect Obama withdraws troops from Iraq, US economy could see further recession unless compensating measures are taken. Three measures could provide boost to US economy with more positive effects in longer run- signing up Climate change treaty could boost demand for its renwable energy sector and improve falling industry competitiveness; boosting construction industry through participation by dollar surplus foreigners; and a wild thought perhaps if US could win hosting of one of the future Olympics to give a boost to its industry !!!!!!. Finally rather than rest of world looking to US economy to boost their incomes , some of the countries like China, Japan etc could provide fiscal stimulus in their own country to boost US economy to some extent