We've got the target, how do we get there?

The Planning Commission's projections for the 11th Plan set out the rules for the game. It's a tough match ahead.

On September 24, 2007, the Planning Commission released a 'consultation paper' titled "Projections of Investment in Infrastructure during the 11th Plan". The 11th Plan runs from April 1, 2007 to March 31, 2012. Since we have already traversed a tenth of the 11th Plan journey, it has not come a day too soon. The train has left the station, and the engine-driver now appears to be somewhat clear on the destination. 
 

1. Sector-wise Investments
Sector	$ Billion
Electricity	150
Roads	76
Telecom	65
Railways	62
Irrigation	53
Water supply and sanitation	49
Ports	18
Airports	8
Storage	6
Gas	5
Total	492
2. Funding Options
Sources of Funding	$ billion
Centre	198
Central Budget	49
Internal Generation	45
Borrowing	104
State	149
Central Budget	100
Internal Generation	15
Borrowing	34
Private	145
Internal Accruals/ Equity	44
Borrowings	101

Overall, the Paper is to be commended for three reasons:

It provides a formal response to the persistent demand of having an economic framework within which discussion and debate on infrastructure investments should happen. More notably, it provides the first official view on GCFI (Gross Capital Formation in Infrastructure) in India's economic history.

It grapples with the funding challenge for meeting the GCFI target.

It seeks to factor in private sector investments as part of a national planning exercise. (The first time around was in the mid-fifties when the famous Mahalanobis model set the statistical foundations for state-directed investments and created the intellectual underpinnings of the license-raj through an elaborate input-output model that sought to predict, control and channelise private sector investments in the product-market economy.)

The consultation paper provides the following seven perspectives:

In a top-down estimate, it postulates an investment target of $488 billion. In a bottoms-up exercise it arrives at a figure of $492 billion. So, for all practical purposes, we can converge at the mid-position of $490 billion.

Assuming the GDP growth rate to be 9 per cent throughout the period, it postulates that the GCFI, as a percentage of GDP, will move up from 5.75 per cent to 9 per cent to arrive at an 11th Plan average of 7.5 per cent.

It predicts that the private sector share of total investment will increase dramatically from an estimated 16.9 per cent in 2006-07 to levels of 31 per cent by the end of the Plan period, to hit an average of 30 per cent for the whole period.

Of the total public expenditure of $347 billion, it takes a clear position that states will have to contribute 43 per cent to the kitty.

It provides the first official aggregate of sector-wise investments as shown in Table 1.

Of the $347 billion of public expenditure, it provides that $98 billion or approximately 28 per cent of public expenditure would go towards rural infrastructure. Areas covered would be rural electrification, rural roads, telecommunications, irrigation and water supply.

It attempts to look at funding mechanisms and options to finance this whopping $492 billion, as illustrated in Table 2.

After examining all sources of debt funding possibilities, the paper concludes that ".......the funding gap for the debt component is $39 billion." As the document is billed a "consultation paper""comments invited", the following observations may be taken in the spirit of constructive dialoguing. At first glance, a GCFI of 7.5 per cent across the 11th Plan period looks disappointing. For a nation groaning under an infra-logjam, and with nations like China reportedly doing a 11 per cent GCFI, 11th Plan projection looks unambitious. But realism takes over quickly as one comes to terms with the staggering $490 billion required even for this. So, with realism tempering desire, the Planning Commission's GCFI targets should be adopted all around as the national target.

The "bottoms-up" approach appears more an arithmetical justification for the elegant top-down number. To illustrate, the sector-wise list does not have a head called "Urban Infrastructure". It has $49 billion earmarked for 'water supply and sanitation'. Nobody has a fix on how much urban India needs. The best estimate one is aware of comes from Ramesh Ramanathan of Janaagraha. He reckons that the appropriate thumb rule is Rs 50,000 per capita of urban population. Using this estimate, investments in urban infrastructure are to the tune of $348 billion, possibly over the next 15 years "" or, say, $116 billion in the 11th Plan period. Where is this amount in the bottoms-up estimate?

It has already been argued in an earlier article (Infratalk, Oct 15) that the resource mobilisation from private sources seems way too high at $145 billion when ground realities suggest a figure closer to $50 billion.

It is not enough to have a target GCFI. It must be monitored on a regular basis. The Planning Commission is strongly advised to push the sarkari statistical establishment to ensure that GCFI actuals are disseminated on a quarterly basis, much like GDP figures. A national fever without a thermometer is quackery!

In August 2004, soon after the UPA government was sworn in, the Prime Minister announced a slew of measures including "revamping the regulatory framework". The Planning Commission's Paper provides no inkling of the action in this area. It merely hopes that large dollops of private capital will materialise by the mere mention of a "credible regulatory structure".

States have to contribute 30 per cent of the total kitty and 43 per cent of all public expenditure. But nowhere in the Paper is there any fresh thinking on a revamped fiscal compact between the Centre and states to achieve this.

Finally, all plans are about making choices "" accepting some and rejecting others. As a nation, we have some tough choices to make in the infrastructure arena; road versus rail, minor versus major ports, rural over urban, fiscal prudence vis-à-vis relaxing the fiscal deficit to fund hard infrastructure and the like. These choices are rooted in political economy. Other than a cursory reference in the conclusion section to issues like efficiency, improvement in public services and rational user-pay charges, the Paper steers clear of suggesting any 'hard' policy interventions, and seeks comfort in laying out the numbers.

But that may well be the current reality "" the importance of arithmetic and numbers, whether in Parliament or the Planning Commission!

The author is the Chairman of Feedback Ventures. He is also the Co-Chairman of CII's National Council on Infrastructure. The views expressed are personal