The Hindu Business Line : `We need an inclusive growth strategy' — Mr Montek Singh Ahluwalia, Deputy Chairman, Planning Commission

IN THE run-up to the Union Budget 2005-06, expectations ran high among different stakeholders of the economy with the key ministries involved in the budgetary exercise boasting economists and with the presence at the top of those with proven reform credentials such as the Prime Minister, Dr Manmohan Singh, the Finance Minister, Mr P. Chidambaram, and the Planning Commission Deputy Chairman, Mr Montek Singh Ahluwalia.

With the imperatives of the National Common Minimum Programme (NCMP) figuring dominantly in the scheme of things, any departure from it would not only be resented by allies from within and without but also be slammed by the Opposition, which looks for every opportunity to pillory the Government for what it calls the inherently contradictory quest to marry market elements with socialist baggage.

In this difficult task and a book-keeping balancing act, the Government must perforce measure its step with great caution even as it aims for accelerated economic growth to ensure the equitable distribution of benefits.

Historically, the Planning Commission, in concert with the Finance Ministry, has been associated with resource transfers to States for financing their Plans and with the allocation of Plan expenditure for development purposes among Central Ministries so that resources are evenly distributed in the larger interest of ensuring and sustaining economic growth. Even in the liberalisation era, beginning in the early 1990s, the role of the Plan panel remained centred on the provision of development finance for major players in the economy.

With the people rejecting the National Democratic Alliance (NDA) in the 2004 general election as they were not convinced by the "India Shining" campaign, the UPA Government found it expedient to marry private sector initiatives for growth with basic issues such as poverty, illiteracy and ill-health.

The new team of Dr Manmohan Singh and Messrs P. Chidambaram and Montek Singh Ahluwalia fervently believes, as the Plan panel chief put it, that: "Any strategy that does not pay attention to economic growth is going to be unsustainable. But you cannot rely on growth only. You have to ensure that the benefits of growth are widespread and you need special measures for those who would not normally get included. We need an "inclusive" growth strategy. Without growth we cannot generate the resources needed for investment in social infrastructure, particularly primary health and primary education, and physical infrastructure provided and maintained by the public sector."

A day after the Budget was presented to Parliament, Mr Montek Singh Ahluwalia, who was involved in important initiatives in the Budget, spoke to Business Line in a wide-ranging interview. Known for his clarity of perception and simplicity of expression,

Mr Ahluwalia said the Budget contains many important measures on the expenditure and revenue sides. The Finance Minister has done an excellent job of presenting a Budget that sends a positive message in the implementation of critical programmes of the NCMP— especially in the areas of health, education and rural development — while addressing the concerns of investors to ensure acceleration of growth and job creation in manufacturing.

He said that economists have long argued that we should lower the rates of corporate tax instead of having high non-transparent depreciation rates. "A corporate tax rationalisation that lowers the tax rates and compensates them by bringing down depreciation rates somewhat is going to help labour-intensive industry. I call this a pro-employment and pro-growth measure", says Mr Ahluwalia, who has often been railed against by his critics for his open advocacy of World Bank-IMF economic prescriptions for development.

Extracts from the interview with Mr Ahluwalia on the Budget and other aspects of work of the Plan panel.

On broad policy thrust in the Budget:

The Budget has been very supportive and the Plan numbers that are built into it definitely reflect that. As for critical sectors, there is a big increase in the expenditure on education, as also in health and family welfare and in the Accelerated Irrigation Benefit Programme (AIBP).

The Budget also imparts a new thrust to infrastructure. It provides additional public resources — for example, in the roads sector — and goes beyond public resources to give a new impetus to public-private partnership (PPP). One of the problems of PPP is that it is difficult to get the kind of long-term debt you need to keep the cost of infrastructure projects low.

Mr Chidambaram has announced the formation of special purpose vehicle which, in effect, will borrow money on the strength of a government guarantee and will on-lend it to viable infrastructure projects. This gives a push within the Plan, both to bolster public sector projects that are viable and potentially bankable, and also to support PPP.

The Budget already has a provision of Rs 1,500 crore for viability gap funding. As a result, many projects that might not be bankable on their own could become viable if viability gap funding is provided as a capital subsidy. We have also provided budgetary funds for certain ministries, such as road transport, and they can use these funds as viability gap funding for BOT (build, operate and transfer) projects and borrow from the SPV for long-term debt.

Thus, two modalities of funding are now available. One is that Budget funds can be used to provide viability gap funding for public sector projects, which can tap the SPV to get longer-term debt than would otherwise be available. Second, a pure private sector BOT in the infrastructure area, could go to the SPV to get longer-term debt funding.

Funding is not the only problem. A lot of clean-up of policy is to be done. This is being separately addressed by a Committee on Infrastructure, which the Prime Minister has set up under his supervision. We are reviewing each of the infrastructure areas and bringing to the Committee's attention policy issues that need greater clarity. PPP is not simply a slogan, as you need more clarity in the policy and the terms on which PPP takes place. The Government has in the last few months expedited many proposals, including the Bangalore Airport project, and is engaged in finalising the terms for Mumbai-Delhi airport modernisation. We hope to come forward with terms of agreement that will attract private investors.

The urban renewal programme is another major initiative that would assist States willing to do urban reform to undertake investment in infrastructure. This is a critical area at present where there are large gaps.

On review of regulatory agencies:

We need to do more to improve the regulatory system. The Prime Minister places a lot of importance on this and has directed us to prepare a paper making an assessment of the state of regulatory structure in different sectors. We will bring it out in April.

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

Stories in this Section
Drawing ire

Promise of metrics to measure implementation of outlays

Imaginative legal reforms

Needless ruckus

The story behind runaway credit

`We need an inclusive growth strategy' — Mr Montek Singh Ahluwalia, Deputy Chairman, Planning Commission

The unfair bracketing of the old

Fringe benefit tax will make compliance more complicated

Tax expenditure

A welcome move

Absurd!

A tall claim