Govt has no shortage of money, but its ability to execute is poor; till that is fixed, India can’t grow at a steady pace
The never-ending debate over whether India has the ability to spend more money to revive the plummeting economy is an important one, but it misses the point. The government doesn’t have a shortage of money, if there is a shortage, it is of intent, or the ability to execute. Unfortunately, this inability to think outside the box for solutions then gets camouflaged and served up as a severe shortage of funds.
A good example of this is provided by Icrier professor Ashok Gulati who, in his last column (bit.ly/31CcjtU), argued that the government could raise at least Rs 150,000 crore if only it sold off the extra 50 million tonnes of foodgrains that it has beyond the buffer stock requirements. In addition, if the issue prices of rice and wheat are raised to at least 50% of the cost—right now, the subsidy is around 90%—and cash transfers are made instead of physical rations, another Rs 50,000 crore can be saved every year.
Pushed to spend more, a smart government wouldn’t say it had no money, it would finance the increased spending from such moves/reforms. While the government is not thinking in such terms, it is not even able to deliver on what it needs to. In the case of the migrants returning home, it is true that feeding them is the responsibility of the states and not the Centre, but the two worst-performing states are ruled by the BJP, even if by way of a coalition in one.
While 639,000 tonnes of foodgrain were lifted by the states against the 800,000 tonnes sanctioned to them by the Centre to feed the migrants, just 107,000 tonnes were distributed in the first two months; for states that had the largest allocations, like Uttar Pradesh and Bihar, the performance was amongst the worst. UP picked up most of its 142,000 tonne quota but distributed just 3,324 tonnes in two months. Bihar picked up all its 86,000 tonnes, but distributed just 1,842 tonnes in the first month and nothing in the second. This cannot, by any stretch, be attributed to lack of cash, it is nothing but lack of intent or the ability to deliver.
The picture gets even messier when you add in FCI’s inefficiency. While the market price of the wheat and rice that is sold for Rs 2-3 per kg in the ration shop is around Rs 25 or so, it costs FCI around Rs 33 per kg! So, that’s a Rs 8 per kg extra expenditure being incurred by using FCI as compared to a non-FCI situation where the grain was supplied by private traders; indeed, since much of the food is to be given in rural areas, the price could be even as low as `15-20 per kg. But take the higher figure and apply that to FCI’s June 1 stock of 100 million tonnes and that’s an additional cost of Rs 80,000 crore incurred for no reason. Had cash transfers been done instead of the physical rations, not only would migrants have got the benefit—Bihar distributed just 2% of what it was supposed to—the government could have saved money. Once again, it is intent and execution that is the problem, not the lack of money. While talking about the lack of money with the government, the normal tendency is to look at the budget, to see how much money comes in from taxes, etc. That’s a bit like a drunk who has lost his keys in the gutter, but is searching for them under a lamppost since that is where the light is. The place where the government has got money is in its assets, and its ability to create wealth by the stroke of a pen; so, that’s where you need to look.
To look at just one asset class of PSUs, their shares held by the central government are worth around Rs 9-10 lakh crore today; as the markets recover, the value will rise too. So, if the government was to borrow Rs 10 lakh crore today—let’s say to fund a bad bank—and this was to be funded by selling the PSU assets over 10 years, no rating agency would even worry since there is a clear asset-backed debt-reduction plan.
And this, as it happens, does not include the value of LIC which is to be listed and could well be worth Rs 10-12 lakh crore. There are then the huge landholdings of the government and its PSUs. Similarly, lakhs of crore can be earned by simple changes in policy like auctioning of 5G airwaves, increasing the FSI in certain areas and large projects can be financed by offering development rights—the Delhi airport was funded like this.
Indeed, though a lot more needs to be done to achieve success (bit.ly/38o23a1), the Railways decision to allow private players to run private trains is an innovative way to create fresh capacity while also fetching the government money. The flip side of this is the way bad policy killed a flourishing telecom industry, as a result of which, the government’s revenues have been falling over the years instead of rising; the tens of thousands of crore rupees the government earned each year from telecom was, literally, creating money out of thin air.
So, the next time any bureaucrat or minister in his government says something can’t be done because of lack of resources, prime minister Narendra Modi needs to sack them because, in all probability, they have not even looked at what can be done to get the money.
Similarly, when his team tells him that India has, once again, jumped up in theWorld Bank’s Ease of Doing Business rankings, he needs to ask why, if this were true, investment-to-GDP levels were falling even before the pandemic. Indeed, a new study by Teamlease, India’s largest temping agency, details just how much red tape remains; there are 463 Acts in the case of labour that need to be followed, 17,966 compliances and 1,262 filings that need to be made. At a time when India needs to really step up its game, especially if it wants to teach China a lesson—high military expenditure requires higher GDP—the government cannot be seen to be lacking in intent and the ability to execute. Yet, that is where we find ourselves.