Economic Highlights

New Delhi, 8 June 2012

PM’s Growth Mantra

OLD WINE IN NOT NEW BOTTLE

By Shivaji Sarkar

“The Government means business”, is Prime Minister Manmohan Singh’s retort to the Congress Working Committee’s (CWC) concerns over the paralysis in decision-making and the severe economic downslide. He has supposedly announced a number of “new” infra projects. Would all this give a push to the economy? Would it propel it to 9 per cent growth as Singh claims? Not only is it difficult but the projects or programmes announced have nothing new to offer. Most of these had either been announced during the past few years, or some were partially rolled or many did not take off. Other than it being old wine it’s less said the better about the bottle.

The projects announced concern ports, roads, aviation, power, coal and railways. Nothing new. In the critically-hit aviation sector, work is on already going on for four international airports at Lucknow, Varanasi and Gaya (part of the Buddhist pilgrim circuit), Coimbatore, and Trichur. All these would be operational by year-end even without the Prime Minister’s announcement.  

The green-field airport projects at Navi Mumbai, Goa and Kunoor had been conceived long ago. Neither is the proposed airport at Itanagar a new one. These were all discussed at various stages and some still need proper clearance. The proposal for creating an airline hub at Delhi and Chennai were also in the pipeline.

However, Singh chose to remain silent on why he sunk another Rs 1200 crore into Air India, turned sick by the ilk of Raghu Menon. It was best for the Government to have announced leasing out the airline to any bidder so as the scandalous drain on the exchequer.

Similarly in the port sector, the Prime Minister’s proposal for two new ports in West Bengal and Andhra Pradesh were already at different stages of approval. Months ago, the Ministry of Shipping had announced that it was reclaiming land at the Sagar Island to build a deep sea port. Interestingly, soon after West Bengal Chief Minister Mamata Banerjee also took the credit for it.

Similarly, there is nothing new about the other port in Andhra. In November, 2010 the proposal for a new major port to be set up at Bhimili in Vishakhapatnam was discussed with the National Shipping Board. Besides, three more at Bhavanapadu and Kalingapatnam in Srikakulam and Narsapur in West Godavari district were discussed. But so far not little progress has been made. These ports would require about Rs 35,000 crore investments but a cash-starved Government has little money to spare. Chances are that the announcements would remain as good media feed.

Likewise, the Dankuni (West Bengal) and Mumbai rail freight corridor are almost 15-year-old story and Singh’s advisers should have acknowledged this before trying to serve it as a new dish. Apparently, both these projects have funding problems with Japan dithering on investments. What magical touch is to be given to make these go beyond the drawing table is worth a watch.

In the highways sector too, the announcements don’t have any novelty. Every Budget has promises galore, but the stark reality lies in development lagging behind and a snail pace in building of roads during over past five years. Besides, the projects have become “green-field” areas of huge private profits at the expense of the travelling populace.

Insofar as the power sector is concerned, the big question before the Prime Minister is how to add 18,000-mw capacity this year? During the tenth, 11^th and 12^th plan, all new power projects have either been delayed or quietly shut down. Undoubtedly, the power sector requires huge investment and it has already taken almost Rs. 400 lakh crore loans from public sector banks. But it has not repaid the same for over five years. The banks have ended up having large non-performing assets thanks to the failure of the power sector.

In all, it is a critical area. The dream may not come true. The Government does not have the funds and the banks don’t have any liquidity. However, the Government has international liability and it has to recapitalise the banks, as per Basel III norms, to the tune of Rs 1.5 lakh crore immediately.

Apparently, the RBI has laid down the road map to make banks safer and avoid a repeat of the 2008 crisis. It also stipulates an increase in minimum capital levels to 11.5 per from the present 9 per cent by 2019. There is no denying that it is a tall order for a Government that is reeling under almost 6 per cent of fiscal deficit.

As of today, the power sector is facing critical challenges. The Prime Minister has asked Coal India to mine 47 crore tonnes of additional coal, which the latter has almost simultaneously announced as not possible. At best, it can supply only 60 per cent of the requirement. Worse, Coal India is unwilling to sign fuel supply agreement as it stipulates supplying at least 80 per cent of the requirement. It produces 431 million tonnes of coal and needs to increase 464 million tonnes if it has to supply 347 million tonnes to the power sector. The target is far too big to handle.

In fact, the power sector is facing far too many uncertainties – procuring coal at higher prices from the international market, a liquidity crunch, little chance of getting additional funding and loss of generation. Even the gas supplies are dwindling. It suffered generation loss of 11 billion units from gas-based units and nine billion units from coal-fired thermal plants in 2011-12. There is nagging fear in the industry that the power sector could pull the growth chart further down. It is also apprehensive that increasing power tariff would push up cost and inflation. In addition, it is likely to turn the job situation more difficult. In totality, it is an unenviable situation.

Ironically, the day Prime Minister Singh announced his moves, Morgan Stanley downgraded the GDP growth to 5.8 per cent from the earlier 6.3 per cent. Worse, the fear is that by end-March 2013 it may even veer around 5.5 per cent! So there is little to cheer. The concern of CWC appears to be a certainty rather than the pep talks of the Government. It should realise the criticality of the situation. The nation has every reason to feel concerned. Nobody seems to be listening. Instead of window-dressing, the Government needs to confabulate with all stakeholders as it looks absolutely clueless. It must remember that publicity blitz does not make up for loss of governance. ---INFA

(Copyright, India News and Feature Alliance)