In such a situation, economic theory tells us that fiscal policy should play a much more substantive role in business cycle stabilisation than it usually would.2 The reason for this is straightforward. In normal times, when output is close to potential and inflation is close to its objective, a fiscal expansion threatens to push inflation above the central bank’s aim.
Banks can finance SPVs, registered under the Companies Act, set up for financing infrastructure projects on ensuring that these loans/investments are not used for financing the budget of State Governments.