Budget Thoughts About Power And A Minister

Updated: Feb 9 2003, 05:30am hrs
When he took over as finance minister, Jaswant Singh said that he was, by nature, a cautious saukar. The signals emanating from the finance ministry are that Mr Singh will be content with Budget for modest growth, moderate inflation and methodical reform. There will not be any inspired initiatives or dramatic announcements. If that is indeed Mr Singhs natural trait, one cannot find fault with him. And if the Prime Minister is happy with the approach of the cautious saukar, the country would have to accept it, albeit with deep disappointment. There will be, I suppose, no more brave talk of a GDP growth rate of 8 per cent.

Once upon a time, however, Mr Singh proved to be very different from a cautious saukar. It was in May 1996. Vajpayees first government had been in office for thirteen days and Parliament was set to vote on a motion of confidence moved by the Prime Minister. The writing on the wall was clear: the first Vajpayee government was about to fall. That afternoon, even while the debate was winding to a close, the Vajpayee Cabinet met and took the momentous decision to sign a counter-guarantee for the Dabhol Power project. It was an unparalleled act of opportunism by a government on its way out. Mr Singh was the finance minister. That decision was a mistake. Any government can make mistakes. Mistakes can be forgiven. What is important is to learn the right lessons from the mistake, put it behind you, and get on with the job. After years of indecision, it appears that the key players in the Dabhol Power project are close to a resolution of one aspect of the dispute: how to re-start the project and generate electricity. In a happy twist of fate, Mr Singh, who ordered the counter-guarantee, is back as finance minister. More than anyone else he would realise the utter stupidity of keeping a brand-new power plant in mothballs when the whole country and especially Maharashtra is facing an acute shortage of power. It is possible that the Dabhol power project made Singh the cautious saukar that he claims to be. Even so, he should exorcise the ghosts of Dabhol and find a creative solution to the problem of a power plant sitting idle in a power-starved country.

While grappling with the Dabhol issue, there is something else that Singh could do. He could persuade himself to take one big-bang initiative in his forthcoming budget on February 28. I have given some thought to what the finance minister can do. There is not much room for big-bang reforms in direct taxes. I think the rates of 10 per cent, 20 per cent and 30 per cent will stay. Some reforms are possible at the margins, like doing away with the surcharges and bringing down the rate of corporate tax, but it would still not be big bang.

The same is the case with indirect taxes. The course was set in the early nineties and successive governments have reduced rates, pitched for fewer rates and narrowed the dispersion of rates. There is room for reduction in peak rates and for greater convergence of rates, and this is what Mr Singh is most likely to do, but there is no scope for big-bang reforms.

Will Mr Singh be able to downsize government The reports of the Expenditure Reforms Commission have been gathering dust for the last four years. Its chairman, Geethakrishnan, has lost hope that they will be implemented and, wisely, he has returned to his passion of bird watching. If we remember that 2003 is an election year and 2004 is the Election Year, we can put paid to all expectations that Mr Singh will launch a major effort to downsize government. As a corollary, there is little hope that expenditure control will be on the top of Mr Singhs agenda. He will be lucky if the ministries stick to te budgeted amounts and not ask for more.

There is, however, one area where big-bang reform is possible in Budget 2003. It is the power sector. One of the reasons for the low level of investment is the terrible mess in the power sector. Every aspect of the sector generation, transmission and distribution as well as regulation presents a dismal picture. Without burdening this piece with too many figures, let me list some stark statistics:

* Against a target capacity addition of 30538 MW during the Eighth Plan (1992-97), the actual addition was 16423 MW, representing 54 per cent of target. Likewise, during the Ninth Plan (1997-2002), against the target of 40245 MW, the actual capacity added was 19015 MW, representing 47.5 per cent of target. In ten years, the country added only 35438 MW and lost the opportunity to add 35345 MW. It was a costly loss.

* At the end of the 8th Plan, the energy shortage was 11.5 per cent and at the end of the Ninth Plan it was 7.5 per cent. In terms of shortage relative to peak demand, at the end of the Eighth Plan it was 18 per cent and at the end of the Ninth Plan it was 11.8 per cent.

* While Dabhol was forced to shut down, most major foreign players have left India. Cogentrix, National Power, Eastern Generation, Daewoo Power, AES and others have simply packed up and left. There are no signs that they will return.

The silver lining is NTPC. It has routinely achieved a plant load factor much above the national average. It has demonstrated its ability to meet higher standards of implementation and performance. I would urge the finance minister to announce a big-bang programme for making a massive addition to capacity in the power sector through a consortium led by the NTPC and promise all the funds that will be required for the programme. It should be on the scale of the Highways programme, in fact even bigger. In one stroke, Mr Singh would have signalled his governments intention to boost investment, improve infrastructure, generate employment and stimulate overall demand in the economy. He would also be able to shed the not-so-flattering tag of a cautious saukar.

(The author is a former Union finance minister)