The Hindu Business Line : Plan panel concern over decline in public investment

The Prime Minister has set up a 10-member Group of Ministers headed by the Finance Minister to work out an alternative decision-making process on investment, and to recommend measures required to address bottlenecks and ensure expeditious decisions.

New Delhi , July 22

IS the low public investment symptomatic of an investment famine plaguing the Indian economy in recent years or is it a case of successful public sector undertakings (PSUs) not funnelling or redeploying surplus funds for expansion and modernisation?

Sources in the Government told Business Line here that even as the gross domestic investment (GDI) as a percentage of GDP has inched ahead from 24.5 per cent in 1996-97 to 26.3 per cent in 2003-04, the public investment rate, per contra, has displayed a more or less steady shrinkage from 7 per cent of GDP to 5.5 per cent.

India presumably has one of the lowest shares of public investment in aggregate investment in the developing world and this is reflected in the rickety state of infrastructure, which is likely to get worse unless the situation is altered.

That is why the Prime Minister, Dr Manmohan Singh, has set up a 10 member Group of Ministers (GoM) headed by the Finance Minister to work out an alternative decision-making process on investment, particularly public investment and to recommend measures required to address bottlenecks and ensure expeditious decisions.

As the Planning Commission Deputy Chairman, Dr Montek Singh Ahluwalia, is also a member of the GoM, a draft note made by the Plan panel attributes the major reasons for the shrinking share of public investment to resource constraints and negative savings of the Government, both at the Centre and in the States, lower utilisation of outlays and internal resources by various Central Public Sector Undertakings (CPSUs), poor project preparation and financial analysis of public investment proposals and lack of resources with State PSUs.

There is also the constraint of the Centre to financially support State governments in infrastructure development since all such support, whether as centrally sponsored scheme or additional central assistance would be construed as revenue expenditures as per extant budgetary practices.

An internal study by the Commission shows that 75 per cent of gross budgetary support (GBS) to the Central Plan is classified as revenue expenditures as per budgetary norms, even as only 45 per cent should be properly counted as such by economic classification. Thus, nearly Rs 50,000 crore or over 1.5 per cent of GDP is currently being added to the revenue deficit of the Centre through misclassification and any additional bid to bolster the States would only widen it further.

Out of the 140 profit-making enterprises of the 240 existing CPSUs, a study of 57 PSUs, which have both positive net worth and net current assets made by the Plan panel, reveals some "disturbing" findings. The balance sheet data show that only 17 PSUs have invested more than 33 per cent of their "reserves and surplus" in the year 2003-04. The remaining 40 PSUs have invested less than 33 per cent.

For instance, BSNL with reserves over Rs 50,000 crore and a cash/bank balance of over Rs 11,000 crore has invested only 12 per cent of its reserves and surplus and similar is the case with MTNL with only 9 per cent investment. Almost all the PSUs in the hydrocarbon sector too seem to be under-investing, given their profitability and internal accruals.

With 50 CPSUs collectively having reserves and surplus of Rs 2,21,157 crore amounting to nearly 7 per cent of GDP, their active investments amount to Rs 81,805 crore, i.e., 37 per cent of the available resources. More than 4.5 per cent of GDP is locked up in bank deposits/government securities, even as these PSUs have together been funding a part of the borrowing needs of the Centre.

The Plan panel note aptly quips that this might have contributed to lower interest rates on public debt, but certainly does not redound to the growth and development of the economy. As bulk of the reserves and surpluses of the CPSUs is in the form of depreciation reserves and not retained earnings they could not be appropriated to any purpose outside the company by law.

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