The Hindu Business Line : India is sometimes called the `build-forget-rebuild' economy

The Finance Minister must provide incentives to private companies to engage more in public-private partnerships in infrastructure projects, such as roads, ports and airports. DR SUNIL RONGALA, GROUP ECONOMIST, MURUGAPPA GROUP.

If an individual in a country must live within his means, so should the government, says Dr Sunil Rongala, Group Economist, Murugappa Group, Chennai.

"If an individual cannot sustain his lifestyle through debt forever, why should the government be given the right to do that?" he asks, in a recent interaction with Business Line. "There should be a continued effort on the part of the Finance Ministry to reduce the fiscal deficit as per the guidelines laid down by the FRBM (Fiscal Responsibility and Budget Management) Act," insists Dr Rongala.

Excerpts from a freewheeling interview, on Budget priorities.

Are we spending enough on infrastructure?

The Eleventh Plan Approach Paper states that the objective of the Plan is to have at least 9 per cent growth. To achieve that kind of sustained growth is going to require some serious spending on infrastructure. Some investment banks estimate the required investment on infrastructure at over $300 billion. India currently spends 4 per cent of GDP on infrastructure compared to 9 per cent in China. A 1 per cent of GDP increase in spending in India means around $75 billion. Since the Government cannot possibly afford that kind of money, it must necessarily be done through Public-Private Partnerships (PPPs).

Is the PPP route attractive enough?

The FM (Finance Minister) must provide incentives to private companies to engage more in PPP in infrastructure projects, such as roads, ports, airports, etc.

Also, the FM must provide incentives to ensure their maintenance. India is sometimes called the `build-forget-rebuild' economy because we build something, then forget about it and, then, when its spoilt, rebuild it again often at a much greater cost than what it would cost if there was proper maintenance.

The Government has promised increased spending on infrastructure, and it needs to put its money where its mouth is immediately.

Does manufacturing get the attention it deserves?

Along with infrastructure, the FM must provide incentives to encourage manufacturing industries a la the Chinese. I mean they need to be mass production industries (labour intensive) compared to the more skilled type manufacturing we have. Obviously we need to encourage the skilled manufacturing industries, but we need to definitely encourage mass production industries. India is sometimes referred to as the only country that is developing without industry/manufacturing. In the long run, it is not a good thing. Countries, as they progress economically, always see a movement of people from the primary sector to the secondary sector.

It has been informally estimated that there are over 100 million people who are underemployed/unemployed in the agriculture sector. These people will definitely come out of agriculture in the coming years and will need employment. Since these are people who fall under the category of `no skills to semi-skilled', the only area that can accommodate them is a mass-manufacturing set-up which, unfortunately, we don't have.

What is the solution, then?

Obviously this will mean that long overdue labour reforms will need to be implemented. I understand that the labour reforms issue is not in the purview of the Union Budget, but the FM should necessarily take a stand on this. The creation of SEZs (special economic zones) gets around this labour reform issue, but this is more a quick fix solution than a lasting one.

Our education system is blamed for not focussing on employability. Your comment.

There needs to be much better targeted spendingon education, especially at the primary level. That the spending on education is paying dividends is reflected in the fact McKinsey has found that only 25 per cent of college graduates in India are `employable'. This has led to a huge problem for many companies in India in terms of a severe talent crunch. It is because of this poor quality of people coming out of the education system that companies are facing such high attrition rates and offering big jumps in salaries; they are all fighting to keep their talent.

While there should certainly be increased spending on education, the spending should be targeted better to ensure that the quality of education is high.

On the contentious issue of subsidies.

The FM needs to optimally direct/target the subsidy on fertilisers. Years of a higher subsidy for urea (nitrogen) compared to phosphates (P) and potash (K) has led to farmers using more urea and less of the other nutrients. What this has done is to create a severe nutrient imbalance in almost every part of India. This imbalance is borne out in the form of poor soil productivity in India vis-à-vis many other countries.

The FM should reduce the subsidies on urea and direct that money to `complex' fertilisers. (In the interest of full disclosure, the Murugappa Group owns Coromandel Fertilisers and Godavari Fertilisers, both of which manufacture complex fertilisers.) My views on the soil imbalance in India are supported by a number of soil specialists. This better targeting of subsidies will actually improve the lot of the farmer and boost farm incomes.

Any imperatives for agriculture?

The FM should provide incentives to companies that set up facilities such as cold storage units for crops in the rural areas. It has been estimated that 40-50 per cent of crops produced in India get spoilt because of the lack of cold storage facilities. Giving such incentives has two positive effects.

One, the farmer who previously lost money now gets more money. And, two, it helps reduce inflation. The recent bout of inflation has been attributed to short-supply of various vegetables. More cold storage facilities will reduce, if not totally eliminate, the problem.

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