Editorial: Wrong solution

If senior officials are to be believed, the government will soon come out with a list of infrastructure projects that will be pushed for speedy implementation, as a way of giving momentum to the economy. The list will be interesting to watch because, in whichever direction one looks, what present themselves are roadblocks in the way of quick action. In power, where capacity creation targets have been missed every year, state electricity boards are in dire straits (in 2006-07, they had a negative return of 24 per cent); some of the ultra-mega power projects (UMPPs) could be pushed along, but financial closure will be difficult in today's environment-equity will not be available, overseas funds are scarce, and the domestic debt market does not have the depth to provide the financing. In any case, with power tariffs below generating and transmission/distribution costs, lenders will be wary of many projects that depend on downstream intermediaries as customers.

The roads programme has obvious potential for creating jobs and giving momentum to the stalled construction sector, but is in hopeless shape as the government has delayed contracts, changed repeatedly the people at the helm in the highway authority, and generally made sure that project completion is the exception, not the rule. In Phase II of the highway programme, barely 5 per cent of the contracts that were to be awarded by last year were awarded, while it is 9 per cent for NHDP-III and 29 per cent for NHDP-V.

In the case of telecom where, despite the economy slowing down, 8-9 million new subscribers get added to the list of those with mobile phones each month, there is a lot of investment that can still be made. Yet, the telecom ministry continues to play favourites - apart from the money lost to the exchequer through under-pricing, it has allotted scarce spectrum to firms which, in the past eight months, have not even begun rolling out their networks and do not appear to be in a position to do so for a while yet. As for the 3G space, where a lot of investments are to be made, the field has been tilted against new players.

The railways, which like the telecom and road sectors are not short of cash, have an ambitious programme for creating new carrying capacity. But for all the talk of special freight corridors, there has been precious little action on the ground, and no action is likely in the context of creating investment momentum in the middle of a downturn. Airport investment is primarily in private hands, and will only slow down as air traffic declines. The Airport Authority could push ahead with project work on the smaller airports that it is handling, but that will have limited impact in the context of the economy as a whole.

Some of the stalled 'core' projects in the private sector (steel, aluminium, etc) could be given a push, but it is unlikely that the land acquisition and raw material issues that have halted many of them in their tracks can be wished away, or resolved quickly. Nor is it clear that private sector enthusiasm for these projects will be at the level of the last couple of years, when commodity prices were at a peak and demand insatiable.

To be sure, the government must do everything it can to speed up project work. But if were to realistically look for ways of creating fresh economic activity, it should be looking in another direction, namely private sector incentives for investment and consumption. These could take the form of tax incentives for additional production (no revenue is lost, because the assumption is that some revenue is better than none at all), interest rate cuts that encourage people to take housing loans, and the like.