There is some evidence that growth and development have come to occupy the centre-stage in the BJP-led governments scheme of things. At the same time, the Centre is also prone to bask in its glory. For example, the government is gloating over the huge pile of foreign exchange reserves (over $100 billion). All governments since those depressing days of 1991 (less than $1 billion!) are entitled to take credit for the accumulation of forex reserves. The most credit should, however, go to the government that made the dramatic policy changes that opened the doors for the influx of foreign exchange, and that was the PV Narasimha Rao government. Successor governments can only lay claim to staying on course and making incremental changes. In calender 2003, the increase in forex reserves has been about $21 billion, but there was no major policy initiative in the year to which the increase can be directly attributed. We can temper our jubilation by noting that, during the same period, Chinas forex reserves increased by $100 billion! The next goal must be to match Chinas achievements, and surpass China in some areas. That requires major policy initiatives, as dramatic and as fundamental as the initiatives that were taken in 1991.
India Shinning: India is shining, but it is not shining for all the Indians. In fact, among the young Indians with only a school education and/or rudimentary technical skills, there is a sense of bewilderment. How is India shining, but he cannot get a job Or, how is India shining, but there is no power during most part of the day India will shine for all Indians only when there is a continuous stream of job opportunities. The central issue is and I dare say the central issue at the next elections will be -jobs. The key to jobs is investment.
There is no other country in the world, save perhaps China, that requires massive amounts of capital investment in core areas such as power, telecommunications, roads, ports etc. Let us look at the record of the past five years of amounts lent by financial institutions to businesses in the core sectors. (See table)
The figures speak for themselves. Lending to the power sector and the telecom sectors has sharply declined since 2000-01. Lending is a measure of the investment in any sector. If lending is down, equity infusion into these sectors also must have declined. The opportunity cost of lack of investment, especially the decline in job creation, will be obvious to everyone. The main cause of the decline in investment in these two crucial sectors was the policy muddle that plagued these sectors. In the case of power, the muddle began with the policy of giving a guarantee and a counter guarantee to secure the payment of electricity charges by the state electricity board concerned to the independent power producer. The first counter-guarantee was approved by the Vajpayee government (in favour of Dabhol Power Company) on the last day of its 13-day government in May 1996. Until this day, the government has not been able to resolve the vexed question of putting in place a payment security mechanism. The government attempted to sell variations of the old escrow account model the latest version is an escrow account only for the loan portion but there were no takers. One by one the major foreign companies
left the country.
The entire burden of adding to the total thermal generating capacity has fallen on NTPC and on the inefficient state electricity boards. Successive power ministers have contributed to the policy muddle. There was the thoughtless letter written by Rangarajan Kumaramangalam that, in my view, killed half a dozen projects in Madhya Pradesh. When Suresh Prabhu seemed to have succeeded in selling his reform-based package to the banks, he was sacked from the government. The present minister is neither seen nor heard. The policy muddle continues, and government seems to have left it to the NK Singh committee to find a way out. In my view, unless there is in place a payment security mechanism, there is no way that investments will flow into the power generation segment.
The Telecom Tangle: The story is more or less the same in the case of telecom too. The old national telecom policy was amended and fine-tuned in 1999. The 99 policy was a reasonably good policy although there were some grey areas. The government should have allowed it to work for at least five years before revisiting it. The three board categories of service providers cellular mobile, fixed and cable would have grown in their respective spheres. Any creases in the policy would have been ironed out by the market.
The government muddied the wasters by introducing a new service called limited mobility. It virtually commanded the regulatory authority to recommend the case for limited mobility, and the regulator obliged. All hell broke loose thereafter. The cellular mobile service providers and the basic telephony service providers have been at war with each other for over three years. Even while the ground was being laid for the last battle, the government muddied the waters more by approving, and granting, unified licences. Successive ministers have shown amazing insensitivity to the legal and economic issues involved in the controversy. When the crying baby landed on the lap of Arun Shourie, he attacked the problem with his usual missionary zeal, but totally oblivious of the legal rights and obligations of the different players as well as of the government.
Mercifully, the parties seem to have called a truce. Shourie, who was seen as a six-gun sharp shooter, seems to have realised that he should not be part of the battling troops but should be above the battle. If all goes well, in the next few weeks the telecom sector may have fought the last internecine war. The worlds major telecom companies may even return to the country and bring with them fresh investments and new technology.
My two wishes for the New Year are that the government should immediately clean up the policy mess in power and telecommunications sectors, and leave the two sectors alone for at least five years.
The author is a former Union finance minister