The Hindu Business Line : Survey harps on efficient use of scarce resources

BALANCING the interests of disparate coalition partners with equally extreme ideology and simultaneously swearing by the National Common Minimum Programme (CMP), the magna carta of the United Progressive Alliance (UPA) Government, is no easy task and this is where the Pre-Budget Economic Survey has comprehensively failed.

The authors of the survey in the North Block have not done a deft tightrope walk, oblivious to the fact that any open advocacy of too liberal economic reforms would result in backlash from allies within the coalition. Hence they toyed with the market mantra for efficient allocation of scarce resources to highlight the scarcity value of many public goods in general and infrastructure in particular, which demand colossal investments from concept to commissioning.

How else one could fault the authors of the survey when they said, "direct Government production of infrastructure services introduces difficulties concerning technical efficiency, adequate scale of investment, proper enforcement of user charges and competitive market structure".

They contend aptly that such direct production "runs the risk of infrastructure, like road construction and maintenance, being misaligned with user priorities and linked more to political interventions and budgetary compulsions".

The truth of this helpless and piquant point could be testified by the Railway Minister during debate in Parliament when members in droves demand line or stopover for their constituency, little regard to the plausibility of their pleas.

While private participation mitigates the problem of risk for the public sector, the survey said at the same time "a complete reliance on private production in an unregulated market is not likely to produce sound results".

As the decline in public spending in the infrastructure sector has not been adequately compensated by the private sector mainly due to constraints in the regulatory milieu, the survey pitches for "an appropriate policy framework enabling public-private participation in the infrastructure sector".

When the NDA Government precisely plumped for this in its budgets including setting up modern convention centres and modernising airports through public-private partnership, the Congress leader and Prime Minister, Dr Manmohan Singh, questioned the rationale of how leveraging a small portion of public funds would elicit massive private funds.

In any case, the public-private partnership is the preferred choice of multilateral development agencies such as the World Bank for long and how the Left parties supporting the UPA Government would take this is a moot point.

Lest the survey suggestion on this score should draw flak, it prudently states elsewhere thus: "A delicate system of checks and balances is required, with careful calibration of incentives, so as to give the private sector the right incentives to invest adequately while at the same time preventing it from extracting monopoly rents."

Again the authors of the survey argue that foreign direct investment (FDI) in retail can not only organise a significant part of the largely unorganised domestic retailing, but also invite established global retail brands into the Indian markets, thereby creating greater outlets for sourcing and marketing Indian products.

In the same vein, it said that organised retail formats will also help in upgrading the quality of products, establishing efficient supply chains from farm to market and generating greater employment.

This is not as easy as it is sounded out by the survey since the foreign investors in retailing would mostly line up their brands in these super bazaars, leaving the domestic retailing business and their products out of the shelf as the latter cannot afford to get their products marketed through these glitzy shops which would charge market-related rent for display and sale of domestic products.

Besides, Indian retailing sales cost is relatively cheaper as the packaging of products and the ambience of the shop do not sway most of the people in grocery shops.

If FDI in retailing is allowed it will make the largely unorganised domestic retailing network to get organised and they might get backed by political dispensation which has traders and small shop owners as their constituencies.

A reform with a human face is still a safe bet for the UPA.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page