There are now swarms of bees buzzing around a honey pot called the fiscal stimulus. The sharp slowdown in economic growth has led to vociferous calls for extra government spending and higher fiscal deficits to boost economic activity. This newspaper has been arguing against such a fiscal stimulus, on practical rather than ideological grounds. India already has a very high fiscal deficit —one of the highest in the world if calculated correctly—and a careless splash of more red ink could put future economic stability at risk.

Illustration: Jayachandran / Mint

A senior Reserve Bank of India official told Mint that certain special interest groups are trying to push through their agendas as the central bank tries to infuse liquidity to keep the economy on track. There is similar pressure in New Delhi, with just about every industry lobby hollering for a government bailout of its members. These are ominous signs, especially in the run-up to a national election.

Prime Minister Manmohan Singh, who also holds the finance portfolio for now, should explain to taxpayers why one type of industry or activity is deemed to deserve support rather than another.

There are a few useful ground rules the government can follow. The strongest case for a bailout is in those activities where there could be a clear and present danger to the stability of the overall economy. Banks are the classic example. Their collapse usually sends waves of panic into the rest of the economy. Then there are industries where the so-called multiplier—a measure of how much one rupee of extra government spending adds to total economic output—is high. Construction is an example of a sector with a high multiplier effect. And then there are industries that employ millions such as textiles. A government could, in some situations, help them to protect jobs.

Powerful companies in sectors such as real estate and airlines are in trouble because of their irrational exuberance and risky financial structures. Their hardships have little to do with the sudden slowdown in demand. Yet, it seems they are having a field day working the levers to pull some taxpayer money their way.

Go for a fiscal stimulus if you insist: but ensure it is not hijacked by powerful interests.

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