The reform momentum generated by a slew of measures to contain the fiscal deficit and liberalise FDI in multi-brand retail, insurance and aviation has waned and the market is thirsting for more measures to revive the investment climate. There is apprehension that, following these measures taken in September, the government has reverted to the pause mode. The problem of ensuring adequate coal production to generate power in a sustainable manner remains and there are no measures in place to ease the bottlenecks for transporting coal from the pitheads and ports to the power plants. Land acquisition issues continue to be debated. Railways are yet to unshackle themselves from the political bandwagon they have been on for several years. The environment ministry does not seem to see any urgency in correcting the policy reversal it has generously indulged in. The impact of these measures has been to steadily erode the health of the financial system and, with the ever-greening of loans, the magnitude of NPAs threatens to destabilise the financial system.
In the meantime, worries about the twin deficits have only further deepened. Current account deficits have continued to widen due to continued sluggishness in exports arising from poor global recovery and continued increase in oil imports. Even as the finance minister has put out a revised fiscal adjustment plan, there are questions about the feasibility of adhering to the revised target of 5.3% of GDP due to the possibility of significant shortfall in revenue collections. The growth of direct taxes so far at a little over 7% over the actual collections last year falls well short of the 19.5% estimated in the budget over the revised estimates. In the case of indirect taxes, the growth up to October at about 17.5% has been impressive and though it is short of the 22% estimated in the budget, it may catch up in the coming months mainly due to the expansion in the base of the service tax.
On the non-tax revenues, with additional disinvestment planned in companies like NTPC, it may be possible to achieve the target of R30,000 crore for the year though the proceeds from auctioning the airwaves will only be a fraction of the budget estimate of R40,000 crore. It is not clear why the government is shying away from divesting in a number of companies in which it has only minority stakes, but could bring in handsome revenues. These include Hindustan Zinc Ltd, Balco and Special Undertaking of the UTI.
On the expenditure side, although the progress in spending on various flagship schemes has been slow, subsidies have continued to proliferate and it may be necessary for the government to increase the price of diesel again by R2-3 a litre, immediately after the winter session of Parliament. Much has been made of the reform in multi-brand retail or the passage of various Bills in Parliament including those relating to insurance, banking and pension to kick-start the economy. These measures are surely important, but they are only signalling measures. It is doubtful whether they can create a sustained investment climate. The basic problem is the poor governance and the solution to kick-start investment in the country lies in addressing this. This does not require the passage of the Bills in Parliament or courting any controversy, but simply the effective leadership to coordinate the functioning of various departments of the government.
It is a common knowledge that huge amounts of investments in infrastructure are held up simply for want of coordination. The lack of coordination between coal and power ministries has received considerable publicity, but that is only a part of the problem. The environment and forest ministry has been shifting the goalposts at its whims and reversing its decisions even after giving clearances, not only causing huge time and cost overruns in various infrastructure sectors like coal, power and highways, but also vitiating the investment climate in the manufacturing sector altogether.
It is nobodys case that environment protection should be given a go by; what is necessary is to evolve a system where the available natural resources are used for productive purposes and decisions are taken speedily. For years together, the ministry of railways has been a victim of political patronage and has failed to provide the basic transportation infrastructure from the coal mines to power plants. In fact, coal production has been severely constrained by the inability to provide rail lines of 50-100 km each to transport coal from the major deposits in Chhattisgarh, Jharkhand and Orissa. While the coalfields owned by the Coal India Ltd (CIL), in Magadh, Amrapali in Jharkhand, Vasundhara in Orissa and Mand-Raigarh in Chhattisgarh have capacity to produce 300 mtpa, the lack of rail infrastructure and dependence on road transport has constrained CIL to produce just about 25-30 mtpa. Furthermore, even as the power plants are starved for coal availability, pithead stocks pile up. Not only that, while loading and unloading for road transportation increases the cost, it also results in significant adulteration with constant disagreements on the quality of coal supplied between CIL and power producers.
In fact, CIL has already made payments to meet the cost of laying the rails for connecting Vasundhara and (50 km) and Mand-Raigarh (63 km) to the railways, but the latter seems to have used the money for meeting its own working expenses rather than completing these stretches. The 100-km Tori-Shibpur-Hazaribagh line connecting Jharkhand deposits is held up due to forest clearances. The situation is not very different in the case rail connectivity to ports from where imported coal has to be evacuated.
The simple fact is that kick-starting investment in the country requires simple coordination between the ministries of coal, power, railways, shipping and transport and highways. This is where leadership comes in. No matter which reform measures are taken and Bills approved in Parliament, the desired investment climate can not be achieved unless the functioning of these five ministries are not coordinated. This does not require the passing of Bills in Parliament nor courting controversies on liberalising foreign investment regime. What is needed is simple leadership and preventing each of the ministries from behaving as they are a law unto themselves. Can the National Investment Board, as it is designed, achieve this
The author is director, NIPFP. Comments welcome at firstname.lastname@example.org