Prime Minister Manmohan Singh’s announcement of specific targets for critical infra sectors in 2012-13, to give economy 9 per cent growth, is backed by a problem-solving mechanism to resolve issues expeditiously. Planning Commission Deputy Chairman Montek Singh Ahluwalia, who made the presentation in the meeting in which the targets were approved by the prime minister, explained to Santosh Tiwari how this whole process — involving monitoring, a framework for solving inter-ministerial issues at the level of principal secretary to prime minister, and then ultimately Cabinet intervention for solving teething problems — would work and also the way forward for facilitating a turnaround in economic growth. Edited excerpts:
With the targets now fixed for critical infrastructure sectors, what are the bottlenecks identified to be removed?
The exercise was not just a routine one. The planning commission and the infrastructure ministries first worked out what looked like a reasonable target. Then, these targets were discussed with the prime minister’s office and there was further upward revision on some. Some elements, which are part of the plan of the ministries but traditionally have not been shown as infrastructure targets, were built in, like the PPP efforts both in railways and airports. The railways target includes specific steps to implement the East-West and North-South dedicated freight corridors. In the case of ports, there are two new ports. In the past, coal targets were not part of infrastructure monitoring. Now it has been brought into the system of targets. It’s a much broader set of objectives.
So, now monitoring and implementation would be easy?
Monitoring by itself only provides information. When delays take place because people in the ministry are not processing things fast enough, monitoring itself can help. But, half the time, projects are delayed not because the ministry is delaying its work but because clearances that have to come from other ministries are not available. That requires a problem resolution mechanism to get cooperation across ministries. In my view, investor confidence would be positively affected if effective problem resolution is put in place that can get these large projects implemented.
How will it work now?
Issues that emerge from monitoring will be referred to the principal secretary to the prime minister, who can bring ministries together. Some compromise among ministries will be necessary and the problem resolution mechanism will help to decide who should compromise. In our system, anybody can stop any project and that is really the problem. I think we need to get over it.
This mechanism will be there for solving problems associated with all projects?
For all projects in the infrastructure area. Similar problems in other areas have to be solved by different means. If the mechanism we have set up helps to get infrastructure projects moving in the current year, it will make a difference. It will also set principles for the future.
Targets have been fixed and the problem-solving mechanism has been put in place. How do you see this working?
Planning Commission will do a review of the first quarter outcome. This could be by end- July, when we will know the first quarter performance. If it looks after the first quarter review that they are getting nowhere, then at our level, we will review what is wrong, to see if the problem is internal or inter-ministerial. In the latter case, the matter can be flagged to the principal secretary. At the end of second quarter, there will be a PM-level review. These targets have been accepted by the ministers who have promised the PM they will deliver. I am sure they will want to show their best performance. If things are not on track, we will know what is the problem and if that problem is not getting resolved at the principal secretary’s level, it should get resolved in the Cabinet Committee on Infrastructure. Ultimately, some ministry may need to be overruled. That can only be done at the cabinet level. That is the ultimate problem-solution mechanism.
The prime minister spoke of taking steps to reach to nine per cent growth. Which are the top priorities picked by the government now?
Energy and transport, and transport means railways, roads, ports or airports. The railways have many legacy problems and they will take a long time to resolve. But they have put forth important milestones. In ports, minor ports have done very well. The major ports have not done very well, but we are told that issues related to security clearances have now been resolved and the shipping ministry is optimistic on meeting the target of 42 ports.
Besides infra, which could be the two critical areas for achieving nine per cent growth?
Keeping control on the fiscal situation is obviously very important. The finance minister has said we are going to stick to the 5.1 per cent fiscal deficit target. He has also said he will contain subsidies, which is good. We must also get over the nervousness of foreign investors. We can do a lot of things to re-assure them. Investors were concerned about some of the provisions of GAAR. The finance minister has set up a committee under a senior official to talk to people. I hope these problems would be resolved to the satisfaction of investors.
Talking of the foreign investors’ perception, FDI relaxation decision that the government wants to take in several areas are not moving forward?
It is true the government announced FDI in retail, but it has been held back for more consultations. That will take some time. FDI in civil aviation has to go to the cabinet and I hope it will be done soon. Things that need legislative approval may not be easy unless the opposition cooperates. But there is a lot that can be done outside what requires legislation, to get economy back on to the eight to nine per cent growth path. We should concentrate on those in the short run.
Apart from infrastructure, which are the other areas?
I have mentioned fiscal deficit and taking care of GAAR-related problems. A successful telecom auction which settles uncertainty in this critical area will make a big difference and an EGoM is looking at that. A successful outcome on the telecom side will improve sentiment. It has to be done this year, by the end of August.
GDP growth of 5.3 per cent in Q4 of 2011-12 has raised questions on the nine per cent growth target fixed for the 12th Plan. How do you see it?
It is clear that GDP growth has slowed to worrying levels. The Government must work towards a turnaround in growth performance. We should focus on reviving investment, which has slackened. I am hopeful that if we can take care of some of these infrastructure investment issues, and if the fiscal deficit looks like it is coming under control, and if some of these reassurances on the foreign direct investment and FII side happen, we should see a revival of growth this year. I am not making a forecast. But, given that the last quarter was 5.3 per cent, even to get an average between 6.5 to seven per cent, requires a quick turnaround. Whatever happens this year, there is no doubt in my mind that the underlying growth potential of India remains between eight per cent and nine per cent. Nine per cent when the global economy is robust and eight per cent otherwise. But to achieve that, we have to do a lot at home. I think energy and transport are very crucial. Energy, most of all. You can’t grow at eight per cent if you don’t have enough energy.
The monsoon and interest rates. How important are these two in the current scenario?
We must work on the assumption that the monsoon would be normal this year. The next scientific forecast will be available on June 22, but so far the prediction is normal, which as you know means plus or minus 10 per cent of the norm. As far as interest rates are concerned, investors obviously want easier rates, but what matters for them is the long-term interest rate and not the repo rate which is what the RBI controls. I do think the circumstances have become little bit more favourable. Oil prices are down, commodity prices are down. So, price pressure on inflation may be less.
Hopefully, the fiscal deficit is also coming down, though it will take time for the people to be sure about that. On that side also, there will be a little more room. Inflation is not yet comfortable. I would like to see it down at six per cent and it is not yet there. But, with the softening of oil prices and softening of commodity prices, if we have a good monsoon, it might well come down. RBI has to juggle all this information and take a call. However, I would say the press focuses too much on the short-term rate. What matters is liquidity and availability of resources with banks and the longer-term rate. If the government borrows heavily, even if RBI alters the repo rate a little, it is not going to make that much difference.