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India should fund infrastructure with foreign reserves

Government finances too fragile to support growth stimulus

| India
The Indian government's fiscal war chest is too small to finance its recently announced road-building plans.   © Reuters

Over the last year, the Indian economy has been rocked by two forceful government policy moves: the sudden cancellation of 86% of outstanding currency notes last November and the implementation of a national goods and services tax this past July.

Each was a blow to growth and the resulting slowdown has prompted widespread calls for fiscal stimulus. In response, the government announced on Oct. 24 that 6.9 trillion rupees ($106 billion) will be spent over the next five years to develop 83,677km of roads. Officials gave little detail on how this initiative will be financed, beyond indicating that both public and private investment will be involved.

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