Infrastructure capacity over-stretched in India?
India’s infrastructure, meaning Ports, Roads, airports, and railways, are they sufficient to meet the burgeoning demand of the economic growth of the Country which is expected to emerge as one of the largest economies of the World in a few year’s time?
Is India’s growth commensurate with the growth in automobile, bus, motor vehicle, two wheelers, three wheelers, four wheelers, six wheelers, and giant trucks that move Containers, passenger growth in trains, aero planes, and Container traffic through ports?
Has the Planning Commission estimated the normal growth and superfluous growth, and arrived at the forecasts that would accurately predict the demand: Supply? Year-on-Year, the Finance Ministers have worried about raising expenditure, bridging the gap, collecting taxes, and focusing on bringing down the fiscal deficit, and allotting a chunk of money for populist schemes with the Vote banks in view. Is there any sincerity in their spending for the downtrodden? Is it aimed at making their standard of living grow? With all the spending, the have-nots increase in geometrical progression. Why? Faint and half hearted attempts to give an impression that the Government looks at an egalitarian Society, when Laws are framed and passed to assist the rich grow to figure in the Forbes List!
You cannot plan growth of rural areas by experimenting with examples. Gross root economics is not what is visualized in the theories of master economists. Even Hayward and London School economists failed to come up with an alternate strategy when the world economy led by America and Europe fretted and fumed?
The Central Government can wash off its hands saying that Road Transport is a state subject. That is why, when they raise the price of petrol or diesel, they tell states to reduce the Commercial/Sales Tax. But it is a fact that the vehicle population, both existing and new, is out of proportion to the available infrastructure. India hardly spends 4% of the GDP when China allocates 9% of the GDP for infrastructure growth. Infrastructure capacity is wholly inadequate rather inconsistent. The supply has not picked momentum against demand. Sector has not achieved the growth commensurate with its potential. The Road usage should have been restricted to 70% of its capacity. In India, the Road capacity is stretched beyond 100%. Port capacities are extremely stretched which raise inefficiencies as the utilization has breached 100%. The traffic is growing at a Compounded Annual Growth rate of 20%, while new capacities created are sizably low. Strong domestic consumption and favourable demographies in terms of young working population in India has resulted in heavy growth of vehicles. To cite an example, the State Bank of India, Kerala Circle, (the smallest circle of the SBI in India) gave auto loans to the extent of Rs 354 Cr in 2009-10 against Rs 34 Cr in 2008-9. What is the percentage of increase? Can the roads in Kerala, limited as they are, accept this additional load?
Just to give comparative figures, the automobile population (including the two wheeler segment) in India during 1990-91 was 22 lakh against 8.59 Cr in 2008-9.
According to statistics provided by the Economic Survey (2009-10), 11,037 Kms of High way has been completed. The Survey says that 1, 45,000 Kms of rural roadways at a cost of Rs 37,000 Cr has been laid upto 2008-9. This year’s budget for the NHAI is Rs 6,972.47 by Cess Funds collected from petrol & diesel users. The Government concedes that it underwrites under-recoveries to the extent of Rs 20,000 Cr. The Cess collected through compulsory taxation is 30% of the under-recoveries. Government should explain that when such is the case, how they can say mathematically the oil Companies are in the red, even after an upward increase every three months. There is something wrong somewhere, taking into account IOC profit of Rs 10,000 Cr in 2008-9. This is a mathematical puzzle more complicated than Satyam. If we look at the budget of NHAI, Rs 6,942.47 Cr is collected through Cess, Rs 1515 Cr is ploughed by way of External assistance (in the form of grant & loan) Rs 379 Cr + Rs 1096.26 Cr borrowings, while the actual Government’s budgetary support is only Rs 159 Cr. Mr Kamalnath is right that when the planning commission coughs up just Rs 159 Cr through budgetary support while the Ministry’s fixture is to lay 20 Kms of highway totaling 7,000 Kms of national Highway per annum. That is to say Government spends Rs 2, 27,142.85 to build 1 km of National Highway.
Private Sector invested 19% of the total plan outlay as participation in the Highway Development Programme, while it has grown to 30% in the XI Plan. Only in the building of Roads, PPP has risen from 5% to 36%.
Term funding, both equity and debt, by Banks, is impossible for the simple reason that the gap in long term debt financing is largely due to asset: liability mismatch facing the Banking industry. Long term equity capacity is also difficult to come by. Permitting pension funds and insurance cos to invest in long term stabilized constructions like roads, directly and indirectly, would be cost effective. Indirect investment in infrastructure funds or creation of listed perpetual funds holding infrastructure assets where investors could invest with an annuity philosophy may be explored. Foreign Exchange Reserves may be deployed for asset creation at little costs but with high returns. If Planning Commission goes on singing in chorus as to the whereabouts of the funds, even though the deployment is in unproductive and unwanted sectors, the infrastructure development will halt the country’s progress.
Showing posts with label capital. Show all posts
Showing posts with label capital. Show all posts
Thursday, August 12, 2010
Thursday, July 1, 2010
India's economic policy
All Monetary and Economic systems are a ‘struggle’ between ‘borrowers’ who favour inflation and ‘creditors’ who are determined to maintain the purchasing power of the currency. Creditors have the money, resulting their having a clout with all hues of Politicians across the political spectrum, and Borrowers have the Votes. Both are vulnerable to our country’s economic and political stability. One Finance Minister wrote off agricultural loans amounting to Rs 70,000 Cr, 2% of the nett Credit granted by Banks.
Our Planning Commission especially and the Financial experts crowding the First Floor of North Block at Delhi have been repeatedly plodding the Government to rein in subsidies, which is distorting fiscal adjustments and its direct consequence is the soaring fiscal deficit. Government is slowly plucking up courage to free prices in the oil economy, according to a news paper and instead ringfence those under the poverty line with subsidized coupons to buy from the market.
Food Security Programme like the Compulsory 100 days work is another flagship programme of UPA II is another whiff in the fresh air of the uncertain governance which has dogged the tenure of Dr Manmohan’s second term. Not a day passes without a skeleton falling from the hidden cupboard. The team of Ministers do not bind themselves as a team and look like India’s Cricket team members who look at different directions instead of concentrating on the 66 yards. Disasters and impediments must not shake the spirit of veteran political heavy weights like Prnab Mukherjee, P Chidambaram, A K Antony, who must guide the Government and the party with sync.
Below the Poverty Line is a convenient political tool to garner votes. It is an economic arsenal to get the sympathy from the have-nots. As many Schemes are conceived for their benefit and betterment, the incidence of poverty should come down. But it goes up in the case of figures of BPL population. It goes without saying that Governments should find the wherewithal to liberate these people from poverty and improve their livelihood opportunities. But with inconsistent statistics, Planning Commission figures do not match that of central Government; the states have different statistics, while NCAER provides a totally different figure. When there is a mismatch between basic figures, how would you rate the Scheme, conduct an audit amongst the beneficiaries regarding their economic and livelihood improvement?
Food Security programme is trying to tie up a number of items which would be part and parcel of it. It looks as though, instead of helping the BPL to really come out of the woods, Government seems to tend to Populist objectives to create vote banks and instead of objectively designing a Programme to obliterate poverty, and create opportunity to help them to have a meal a day. The Government should try to neutralize fuel price, which would reduce the artificial price differential between subsidized and non subsidized fuels. 39% of the Public Distribution System Kerosene is diverted by retailers and of the total value diverted, 18% is used to adulterate diesel. Due to heavy subsidizing, Oil Companies are slated to incur huge under recoveries of around Rs 28,225 Cr in 2008-9 alone.
With the increase in electrification of villages, consumption of kerosene for lighting purposes in rural areas has fallen. Dr B K Chaturvedi Committee found rural use of kerosene for lighting has fallen to 40% from 51% in 1990-2000 and 1% among the BPL uses it for cooking purposes. 24% of rural kerosene consumption goes to states which have achieved 100% electrification. Subsidized fuel reaches the hands of the unintended that use it for various other purposes other than for what it was intended.
Government has no control over the import of edible and Crude oil, which it is importing from a number of Countries at grossly nil Customs duties (Crude) and 7.5% for refined. It has been reported that the Crude is refined and put to edible uses. 80% of the 80 lakh tones of imported oil is palm oil. This 80 lakh tones imported last year was over and above India’s edible needs by +30%. This excess is stored in the State Trading Corporation Godowns. Edible Palm oil is also distributed through Public Distribution System by paying for every one litre of Palm oil purchased, Rs 15 is released. Imported Oil, Customs duty waiver (Rs 24,000 Cr loss), and subsidy through PDS (1 litre= Rs 15/-). All the exports of edible oil, ground nut, castor, coconut, gingili, olive, saffola, etc are ‘Prohibited’ for Export. Government want to keep the prices of imported oil below the domestic market price so that indigenous made edible oils will suffer as they are not price competitative.
If India has to withstand global recession, India needs to focus on labour intensive growth rather than capital intensive manufacturing growth. There is a huge shack of money in the Bank chests. The low inflation of the last three/four years have been due to reckless spending by the middle class and lower middle-class that enjoyed fat pay, improved living conditions, separation from Joint families. Cash handouts like improvement of salaries of Government staff through 6th Pay Commission also increased spending. Multiplexes and ten story mega malls made huge profits from brisk sales. Concomitant export growth also was responsible for the higher economic growth. Pump priming cannot work longer, it is like double dip.
Our Planning Commission especially and the Financial experts crowding the First Floor of North Block at Delhi have been repeatedly plodding the Government to rein in subsidies, which is distorting fiscal adjustments and its direct consequence is the soaring fiscal deficit. Government is slowly plucking up courage to free prices in the oil economy, according to a news paper and instead ringfence those under the poverty line with subsidized coupons to buy from the market.
Food Security Programme like the Compulsory 100 days work is another flagship programme of UPA II is another whiff in the fresh air of the uncertain governance which has dogged the tenure of Dr Manmohan’s second term. Not a day passes without a skeleton falling from the hidden cupboard. The team of Ministers do not bind themselves as a team and look like India’s Cricket team members who look at different directions instead of concentrating on the 66 yards. Disasters and impediments must not shake the spirit of veteran political heavy weights like Prnab Mukherjee, P Chidambaram, A K Antony, who must guide the Government and the party with sync.
Below the Poverty Line is a convenient political tool to garner votes. It is an economic arsenal to get the sympathy from the have-nots. As many Schemes are conceived for their benefit and betterment, the incidence of poverty should come down. But it goes up in the case of figures of BPL population. It goes without saying that Governments should find the wherewithal to liberate these people from poverty and improve their livelihood opportunities. But with inconsistent statistics, Planning Commission figures do not match that of central Government; the states have different statistics, while NCAER provides a totally different figure. When there is a mismatch between basic figures, how would you rate the Scheme, conduct an audit amongst the beneficiaries regarding their economic and livelihood improvement?
Food Security programme is trying to tie up a number of items which would be part and parcel of it. It looks as though, instead of helping the BPL to really come out of the woods, Government seems to tend to Populist objectives to create vote banks and instead of objectively designing a Programme to obliterate poverty, and create opportunity to help them to have a meal a day. The Government should try to neutralize fuel price, which would reduce the artificial price differential between subsidized and non subsidized fuels. 39% of the Public Distribution System Kerosene is diverted by retailers and of the total value diverted, 18% is used to adulterate diesel. Due to heavy subsidizing, Oil Companies are slated to incur huge under recoveries of around Rs 28,225 Cr in 2008-9 alone.
With the increase in electrification of villages, consumption of kerosene for lighting purposes in rural areas has fallen. Dr B K Chaturvedi Committee found rural use of kerosene for lighting has fallen to 40% from 51% in 1990-2000 and 1% among the BPL uses it for cooking purposes. 24% of rural kerosene consumption goes to states which have achieved 100% electrification. Subsidized fuel reaches the hands of the unintended that use it for various other purposes other than for what it was intended.
Government has no control over the import of edible and Crude oil, which it is importing from a number of Countries at grossly nil Customs duties (Crude) and 7.5% for refined. It has been reported that the Crude is refined and put to edible uses. 80% of the 80 lakh tones of imported oil is palm oil. This 80 lakh tones imported last year was over and above India’s edible needs by +30%. This excess is stored in the State Trading Corporation Godowns. Edible Palm oil is also distributed through Public Distribution System by paying for every one litre of Palm oil purchased, Rs 15 is released. Imported Oil, Customs duty waiver (Rs 24,000 Cr loss), and subsidy through PDS (1 litre= Rs 15/-). All the exports of edible oil, ground nut, castor, coconut, gingili, olive, saffola, etc are ‘Prohibited’ for Export. Government want to keep the prices of imported oil below the domestic market price so that indigenous made edible oils will suffer as they are not price competitative.
If India has to withstand global recession, India needs to focus on labour intensive growth rather than capital intensive manufacturing growth. There is a huge shack of money in the Bank chests. The low inflation of the last three/four years have been due to reckless spending by the middle class and lower middle-class that enjoyed fat pay, improved living conditions, separation from Joint families. Cash handouts like improvement of salaries of Government staff through 6th Pay Commission also increased spending. Multiplexes and ten story mega malls made huge profits from brisk sales. Concomitant export growth also was responsible for the higher economic growth. Pump priming cannot work longer, it is like double dip.
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