Within a few days of the Kelkar committee submitting its report on fiscal consolidation, another committee under Deepak Parekh came out with interim proposals on infrastructure financing. Given the deluge of reports that are being submitted to the government, there is a genuine expectation that more policy action is on the anvil and some headway in controlling fiscal deficit on the lines of what Kelkar suggested will be made. Since infrastructure is a crucial ingredient that is still missing in the government’s reform prescription, movement on it too is anticipated.
Kelkar’s is a prescription that predictably makes a case for cutting down subsidy by aligning consumer prices to market, something that private investors in infrastructure will also plead. At the same time, it makes a point on rightsizing of the Plan expenditure. Stating that the objective of growth in successive Five Year Plans “was in pursuance of expansionary fiscal policies to spur growth in the economy”, it says correction of the base in the Twelfth Plan is required to carry out fiscal consolidation. Accordingly, a growth of 15 per cent and 18 per cent in 2013-14 and 2014-15, respectively, over the corrected base of 2012-13 is suggested. A higher growth is provided for in 2014-15 as the fund requirement for most projects envisaged in the Twelfth Plan may be highest in the middle of the Plan period.
When the Kelkar report talks of rightsizing Plan expenditure, it not only underscores the need for fiscal consolidation but also signals that increasingly private sector has to pitch in with investment for higher growth. So, we have Deepak Parekh panel telling us that almost 47 per cent of the Rs 51,46,427-crore investment in infrastructure, the most capital intensive of all economic activities, has to come from the private sector in the Twelfth Plan against just 38 per cent in the Eleventh Plan. The panel acknowledges that though infrastructure ministries require large budgetary support, such expectations may not fructify on account of competing pressures from social sectors.
Within infrastructure, the laggards in attracting private investment are electricity, national highways and railways that saw 48 per cent, 42 per cent and 5 per cent of investment coming from the private sector in the 11th Plan. Just how will this suddenly catapult into higher private sector share in the current Plan is something that the interim report has failed to address. Strangely, it emphasizes publically funded engineering procurement and construction (EPC) contract mode for award of highway projects. It is silent on the capacity constraints in the private sector in the light of the fact that companies have more on their plate than they can actually execute. So, how exactly a 200 per cent jump in private investment in central road projects and 150 per cent in state projects will be achieved is not known.
Given the track record of Indian Railways, the expectation of Rs 79,797-crore investment in public private partnership projects is nothing short of a mirage. Investment in power sector too looks unattractive from the private sector point of view given the fuel constraints and the inability of the tariffs to absorb higher costs.
It is time that the government and its prescription writers realise that throwing investment numbers based on compounded annual growth rate needs to be tackled inversely—actual project estimates that ensure better quality infrastructure is what is desired than meaningless reports largely based out of excel-sheet calculations.
