The Hindu Business Line : Implementation, key to success

The economic impact of the fiscal stimulus packages depends on implementation, which in turn hinges on co-ordinated functioning of the States, the Centre and the public and private sectors, says S. VENKITARAMANAN.

The Planning Commission should set apart a chunk of time and personnel to ensure speedy and cost-effective implementation of infrastructure projects.

The second fiscal stimulus package recently announced by the Government and the Reserve Bank of India has been broadly on the lines of the first stimulus package, but has also expanded its scope to provide for greater incentives for exporters, infrastructure, the textile sector and the NBFCs.

While the intentions of the Government for providing the stimulus are understandable, the problem arises mainly with regard to its implementation. I am sure the Government at various levels would have devoted time in spelling out the priorities for organising adequate capacity for implementation and absorb the larger levels of additional funding indicated in the two stimulus packages.

In his recent statement clarifying the details, Mr Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, has emphasised his focus, particularly on implementation by using India Infrastructure Finance Company Ltd (IIFCL) for refinancing infrastructure projects. IIFCL is expected to leverage the additional Rs 30,000 crore, which it has been allowed to raise through tax-free bonds, to provide about Rs 75,000 crore for infrastructure sector projects. This order of magnitude of infrastructure spending is desirable, but a tall target. It means upgrading the levels of infrastructure spending in the country by a factor of nearly two. In view of the delays in our infrastructure projects, even at its present levels, it is not clear how much more can be spent.

Procedural problems

To mention an instance of procedural problems, there are many issues created by the competing bidders in the determination and allotment of successful tenderers and the process is open to litigation with the judiciary coming in at every stage. These delays add to governments’ own procedures.

It is essential, therefore, that the Deputy Chairman of the Planning Commission gives priority to smoothing the bidding process for highways, power and other projects. There must also be an attempt to prevent entities from resorting to litigation. Can this be ensured by a pre-bid agreement?

The task is especially serious when we consider that IIFCL is only a funding agency and implementation rests with other entities. The funds it raises have to be spent by the implementation agencies or departments of Government. There has to be some incentive for speedy implementation together with efficiency.

The successful experience of ISRO and Delhi Metro should be studied as to how they were able to achieve speedy and cost-effective implementation. That should form the paradigm for the rest of the nation. The Planning Commission should set apart a substantial chunk of time and personnel to ensure speedy and cost-effective implementation.

Assessing project viability

With regard to public-private partnerships on which the Deputy Chairman, Planning Commission places much faith, experience in the country, although limited, shows that such partnerships often find difficulties in the interpretation of concession agreements and their enforcement. Concession agreements, to which the State Governments are a party, are always weighted in favour of the consumer. This means that the profitability of the projects and their viability are adversely affected in many cases. The projects’ cost overruns will undoubtedly reflect on tariffs. The concession agreements are usually indifferent to such charges.

Banks, which finance public-private partnerships, often find it difficult to assess whether the projects are bankable within the terms of the concession agreement and other known factors. Banks are considerably constrained not so much because of liquidity concerns but because of their fear that the projects they finance may turn out to be non-performing items.

There has to be a campaign to ensure that the public-private partnerships assess their viability with due caution, bearing in mind the bankers’ prescription of the risks that their projects involve. I mention this only to stress that it is not the availability of funds alone that is the problem, but the existence of viable projects and capacity for effective implementation of such projects, which will enable banks to take the necessary risk and finance the projects.

Funds for NBFCs

There has been a mention in the stimulus package of a special arrangement for making available finances to NBFCs. This is a desirable innovation and it should not result in the substitution of the existing facilities under which banks directly give funds to NBFCs.

It is not a question again of whether the NBFCs receive funds but whether they deploy funds to projects and borrowers with reasonable certainty of repayment. There has to be a national educational campaign for training NBFCs on project appraisal and assessment of borrowers’ creditworthiness and project risks.

The question has been raised as to what role the State Governments should play in implementing the fiscal stimulus package. The additional funds that the two fiscal stimulus packages provide will be infructuous if the State Governments do not improve their share of implementation. In addition, they should also adjust their tax levels to cater to the needs of the various individual sectors and not countervail Central tax relief.

It should not be a case of the States taking away (by way of additional taxes) what the Centre gives. This is particularly true in the case of export sector, automobile, automobile parts and housing industries.

The State Governments have to rearrange their industrial departments’ priorities to take into account all reasonable devices to ensure that the reliefs proposed under the Central fiscal stimulus packages are not diluted.

Too little or too generous?

A question has been raised as to whether the fiscal stimulus packages have erred on the side of caution. Time alone can tell whether the Government has been too late, too little or too generous. It will take at least two-three quarters for the impact of the monetary/fiscal stimulus package to be felt. But, one would expect that the confidence level of the economy and the economic agents would have increased sufficiently as a result and reflect itself in greater investment intentions and options across the economy.

The RBI has done its bit by reducing interest rates, releasing liquidity and so on. But, lending is a matter of bankers’ decision. Bankers can take only legitimate risks. The Government should examine whether and how they can incentivise banks to lend to such projects that are vital to growth and the success of the fiscal stimulus.

The fiscal stimulus proposals include provision for helping transport corporations to increase their vehicle strength. Good as the proposal is, the planners should also look into issues of viability of State transport services. Increased vehicle strength can translate into more employment, but also more losses if tariffs remain very low and subsidised. This is the right time to enforce proper co-ordination and recovery of user charges.

To sum up, the fiscal stimulus packages involve a set of good intentions. However, the economic impact of these packages depends on implementation, which in turn hinges on co-ordinated functioning of the States, the Centre and the public and private sectors.

It is hoped that the Planning Commission will devote as much attention to ease the implementation aspects as it had to the formulation of the packages.

( blfeedback@thehindu.co.in)

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