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As economy booms, pressure to cut subsidies will go down

As economy booms, pressure to cut subsidies will go down

By the end of next year, both projects and financial facilitation for them should reach a stage where it's smooth sailing for infrastructure sectors, if Montek Singh Ahluwalia, Deputy Chairman, Planning Commission of India, has his way. Here are excerpts of his interview with Shashidhar Nanjundaiah where Ahluwalia points out the need for better inter-ministerial coordination, some centralisation and reducing discretionary powers for public implementers by creating systems.

Let me start with the infrastructure funds, which you have mentioned time and again. How many funds do you expect and what is the timeline are you giving them?
Originally, we talked about an approximate size of each fund of around $10 billion. But given the amount of money we need in the next several years, I would hope that we should have at least four or five funds of that magnitude in the very next year itself. The most important thing is that you get the first one going. The success of those initial funds will determine the flow. So it is very important to know what the initial reaction is. Of course, we are only working on the policy front.

On the implementation side, many banks have expressed their keenness: ICICI, SBI, some of the foreign banks. I think we need to give this a month or two. Many of them are taking their time to study the prospects, perhaps wait for the Europe zone prices to stop, find an appropriate time to announce it. One way or the other, I do hope that in the very first year-the next 12 months-we have the four or five funds as I mentioned.

You have stated [before] that the present slowdown should ease up by March.
I believe that the Eurozone crisis will get resolved by that time. High level political decisions in these situations are bound to be difficult. Resolution of the Eurozone crisis does not mean that Europe will start growing very rapidly. It just means that the financial uncertainty, which is very high at the moment, will come down. Worldwide, governments and investors will start deploying funds.

For India, it won't be as bad as last time. But we do not know what the impact will be globally.

You've suggested subsidy cuts in the 12th Five Year Plan. Do you believe it will happen?
You can never tell what is on the anvil. Political processes have pros and cons. They look at cir­cum­stances and revenues. What we have said that if the government wants to do the things that need to be done for productive investment, and if the revenue growth has to be at the levels that the finance ministry sets, then they have to cut subsidies. I personally feel that some, not all, subsidies should be cut. If the eco­nomy booms, the pressure to cut subsidies will auto­matically go down.

Does your Plan address the subsidy cut?
By subsidy cut, I mean it should not go above the current budget proposition. The key point is that sub­sidies should reduce as a percentage of the GDP. That cuts two ways: if GDP booms, you can afford the sub­sidy, and if it falls, you may not be able to afford the subsidy. But those are difficult decisions. Those who have wrestled their way to increase subsidies simply view subsidy cuts as an anti-people measure. But what they do not realise is that if you cannot deliver an infrastructure, you do not expect growth, and if you do not get growth, there will be less revenue, so it is a vicious circle.

You said recently that we are going to have a shortfall of as much as 12 per cent. Do you think that our planning has been realistic enough or is it an implementation problem? Take the targets we are setting up for ourselves, for example, in power generation. Is there a pre-planning process that goes into this planning because of which you know it is achievable?
It is achievable-absolutely, but only if the system of implementation and decision making is accelerated to a very high level. It is possible that that it won't be the case, so there is some shortfall. If you set high targets, the aspiration is to get close to the target. On a 9 per cent target, for example, at a time when an 8.5 per cent has not so far been achieved, the achievement of 8.5 is commendable. Would we have been better off setting a more realistic target of 8.5 per cent? People tell us that if we had set 8.5, we would achieve 8 per cent. A target is aspirational, but it cannot be unre­alistically high so as to be self-destructive.

The other thing, frankly, is that a target is set for a five-year period but it is not as though everybody is going for the target. It is only at the end of the first year do we recognise whether the growth is too slow, make a course correction can be made if necessary at that point, or accept the fact that the projected growth cannot be achieved and scale the target down. Either way, it leads to a complex chain reaction.

For example, let us take coal and power. Suppose we find that power is doing well and coal is not doing so well, we need to plan for more coal imports in the fourth year, which means we plan in the first year itself for more port capacity by the fourth year. Moving to higher dependence on imported coal means technical tweaking like boiler capacities.

Some experts have suggested that a separate Infrastructure Commission or a separate ministry should be set up. Since infrastructure is an enabler in kind of laying the ground for the other ministries to operate on, this commission or ministry can then act like an inter-ministerial coordinator. Your thoughts?
Establishing a new ministry of infrastructure or ene­rgy-transport may entail that two or three ministries be combined and therefore two or three cabinet ministers would lose their jobs! So that may not be completely feasible. Also, a single ministry cannot look after such a width of activities: There are many active Public Sector Units (PSUs) under these ministries.

Ministries work towards often divergent goals: It is not the environment ministry's job to make sure that coal is produced-her job is to make sure that trees are not cut. On the other hand, the coal minister's job is not to look after the forest; his job is to produce coal. So we need a coordination mechanism in the form of a Cabinet Committee. Now, we do have a Cabinet Committee on Infrastructure. The Planning Commission serves as the Secretariat. The Committee intervenes in tricky situa­tions-a typical one being when the coal ministry says it cannot produce coal because the environment ministry does not grant the permission. But what can the Cabinet Committee do when the ministry states environmental policies as the reason? The Empowered Group of Ministers (EGOM), currently under Mr Pranab Mukherjee, then intervenes and negotiates between ministries towards a common goal.

Do you think there is enough clarity in go and no-go classifications? Does it need some intervention from the government so that the industries can move forward and not be in a limbo?
I would look at it this way. We should take stock of the projects on the ground and take a pragmatic view. These projects have come on the ground during a period when the regulatory regime was ambiguous. So we need to take a practical view as to which of these can go forward and which of these cannot go forward and the ones that cannot go forward what are the alt­ernate arrangements that you can make. For example, if a power project has been allotted a coal linkage in a tiger reserve, it is unacceptable to everybody. There have been cases the map that the coal ministry uses does not have forest or tiger reserves on it. But they do know the area has coal. At that point, the government needs to decide whether to allot a new block or to wash its hands of the matter.

Do you think your plans should involve technology recommendation or technology included in those allocations so that this kind of error does not arise? GIS mapping could be a solution, for example, in the above hypothetical situation.
All problems of scarcity in human history have been solved by technology. It is not that planning inj­ects technology: technology is available. Project con­tracts should set the goals, give enough flexibility and let the concessionaires solve the problem by bringing in technology.

That would be good for private players, but what about the public sector projects? For example: in mining, much of the illegality was discovered because of satellite technology.
The satellite technology made incontrovertible what was already known or suspected at the ground level. So there was failure of governance in those mining stations. This is an example where technology is indispensable.

Does a public procurement policy figure in the 12th Plan?
We are strongly in favour of having a national procurement law and we have prepared a draft law, which is on the Planning Commission's website. It has been referred to the Secretary, Expenditure, because the Vinod Dhall Committee has recommended that there should be a procurement law. It is an interesting case where there are major 5-6 procuring departments. Each department believes that there should be a procurement law but they should be exempted. So if you accept all their views all the major procuring departments will be exempted!

What do you think will happen?
The Prime Minister has declared that we are going to have a law, but the only issue is what kind of a law it will be. What we have laid out could be too detailed for a law. So there is a question of how much of what we say should be in the law and some people have raised an issue and how much should be in the rules.

Some of those details could find their way into the draft rules. In my opinion, the procurement law and draft rules should be discussed together. It is useless to say that there shall be a national procurement law in which the government laid down the rules, and that procedures for procurement which will be notified sep­arately and the Parliament passes that. That is also subordinate legislation, it goes to Parliament and at that time nobody takes an interest in it. That is why our thing is detailed. If we do not agree with it, let us say so. Let us not have a drafting solution.

What would be the implications of a law on procurement?
That is a tough one. It is not as though these things are not covered by any rules. There are general financial rules that serve as guidelines for government officers. The applicability of those guidelines is all determined internally. So it gives the officers a lot of flexibility. If you were to make it a national procurement law, the officers will not seek flexibility.

In procedure?
In procedure as well. Government officers are res­ponsible people and deviation from a guideline issued by the Finance Ministry requires a lengthy procedure. With a law, the rules will become much tighter.

The second important thing is that the law will lay down not just the issue whether there is competitive bidding or not but how the bidding should be done, thus eliminating any possibility of fiddling with the bidding. The law will provide not just guidance to government officers, it gives rights to contractors and concessionaires.

People could say decision making could come to a standstill. This depends on courts: If the law has been followed in a transparent manner, people should not be able to obtain stay orders.

What impact will the new law on corruption?
If we pass a suitable law that governs procurement, it will be a major contribution to reducing corruption. The OECD has estimated that absence of law or best practices leads to 30 per cent wastage of expenditure. Was­tage can be due to inefficiency, but it can also be a code name for leakage or corruption. Procurement laws are in place in many other countries, and we have to learn from how their practices have curbed corruption.

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