With good governance, fiscal deficit is irrelevant--Business Line
July 15, 2013:
The Food Security Bill has drawn predictable outrage from economists in general. An exception was Amartya Sen. Perhaps M. S. Swaminathan too, who has for long stressed on adequate nutrition.
Granted that the Bill is unashamedly populist and is timed less than a year away from the next elections. And the architects of the largesse have least the target group’s interests at heart.
The objections of ‘pros’ are because of the fiscal deficit. One columnist calculates that it will cost the Government over Rs 3,00,000 crore, not Rs 1,00,000 crore, as estimated.
Are there not plenty of other bigger sources of the deficit, alive, well and growing for many years but not talked about much?
PPP IN INFRA
Take, for instance, outgoes on ‘public-private partnerships’ in infrastructure. Featherbedded capital costs, operating costs, tariffs, interest rates and equity returns allowed to ‘private developers’ are in scandalous proportions.
Highway tolls have built in automatic escalation clauses with the result that, for instance, driving from Chennai to Bangalore on the toll road has about doubled in just about five years. The tariff fixers ‘forgot’ or ‘overlooked’ a simple fact: the jump in traffic volumes, which are a given in a growing economy. It’s basic costing that fixed costs when spread over larger numbers reduce unit cost significantly.
Mumbai and Delhi airports levy charges on passengers to fund developers’ equity. Any precedent, anywhere in the world? Yet, the current Civil Aviation Minister, aware that his sell by date is fast approaching, wants to privatise other airports. He can’t be stopped because his party provides the ruling coalition’s parliamentary majority. We ended up paying billions of dollars in damages on Enron’s Indian power project when it was abandoned as unviable without producing any power. The luminaries who were responsible for clearing the project, overriding knowledgeable experts including those in the World Bank, also cleared the payments and are happily ensconced in Government even today. Truly, it can be said of our Government and polity — commit billion dollar ‘mistakes’ and you are sure to rise to the highest positions in the land.
CRONY CAPITALISM
The joke in PPPs is that no money comes from the ‘private partner’. With the licence in hand, the private promoter approaches the nearest Government bank. A few friendly phone calls from high-ups are enough for a public sector bank consortium to be quickly formed to fund the project.
Not enough collateral? Well, your licence itself is worth thousands of crores, no problem. Project not ‘viable’? No problem, we will write off what we can of your loans and convert some into equity at a handsome price. And give you ages to pay whatever is left. You are free to continue to ‘mismanage’ the business.
The story in the numerous PPPs in power, airports, roads, airlines, and telcos is of promoters extracting upfront their minimal investment and massive debts to Government banks, including guarantees on foreign borrowings. Also called ‘crony capitalism’.
The issue is not the fiscal cost of food security but gross economic mismanagement, which, to be fair, is not the monopoly of only the current ruling party.
To the numerous critics of food security: good governance can support far bigger fiscal deficits than you can imagine. Focus on that.
No comments:
Post a Comment