Only Massive Public Spending On Infrastructure Can Deliver On Promises

Only Massive Public Spending On Infrastructure Can Deliver On Promises

The passage of this year 2016 will cross the half-way mark for the Modi government. Right now, FDI is looking good, particularly from Japan, even exciting, but there is always a lag. And the urgently needed new jobs have not been created as yet.

The economy as a whole has only recovered to the extent that oil prices have dropped. Petroleum ministry estimates for FY 16 suggest that India will buy $88 billion worth of crude, down from $112.78 billion in 2014-15, a 21.7% reduction in the bill.

This, even as the overall quantity imported will be roughly the same at 188.23 million tonnes in FY 16, as against 189.43 tonnes imported in FY 15.

It is interesting to know that the oil bill was only $3.518 billion in 1998-99, and the quantity of crude imported that year was a mere 39.8 million tonnes. All along the line however, India imports at least 80% of its ever expanding appetite for crude.

But now we are saving thousands of crores, Rs. 138, 714 crores between FY 15 and FY 16 alone, and this money can well be deployed towards building infrastructure instead.

Gold imports, that other perennial, have also eased a bit, partly because of the government’s efforts to winkle out domestic gold in private hands and places of worship, and partly because of higher import duties. But exports of everything are sharply down. Manufacturing, a traditional job generator, has actually shrunk.

The non-functioning of two parliamentary sessions on the trot have put paid to the government’s legislative agenda. And after two nondescript budgets, it is hard to expect very much from the forthcoming one.

Ergo, this government must rely on its executive and administrative actions to get ahead.

But the current picture is far from good. The property market, accounting for 17% of the economy, lacks sufficient end-user demand, despite hype about affordable housing, smart cities, and housing for all by 2022.Prices have corrected some 20%, but there’s still  no buyers.  

Of late, there is talk of foreign PE and vulture funds getting in on some of the projects, as well as other distressed assets of over-leveraged and bankrupt companies in other fields. But even this is not exactly taking off.

Agriculture is doing poorly, with three consecutive droughts, and none of the promised value-addition. Where is the modernisation and food processing industry? Even the early initiatives on marketing support seem to have fizzled out.

The banks are underreporting bad debts, and continue to be hugely under-capitalised.  The stock market, another source of corporate funding, has turned in a disappointing 2015. However, there are indeed a lot of hopeful IPOs lined up for 2016.  

The debt market has done well, given its steady, over 8% plus returns. This is good, particularly if one borrows at near zero abroad, like most FIIs do. However, the constantly weakening rupee takes the shine off it somewhat.

The e-Commerce space, and that of impressively valued Start-ups seem to be the shape of the future. But, they are already cutting into brick and mortar retailing, as well as the established IT services space.

There are now also over a billion cellphones in Indian hands, most of them inexpensive smart phones, but the broadband speeds and chronic bad coverage/call drops, make plans for a digital India seem unlikely.

New initiatives like Make in India and Swacch Bharat will deliver some employment, particularly in defence manufacturing, but not a lot, as even Niti Aayog admits.

The good news, is really all about oil/gas and some other essential commodities and metals. Barring a catastrophe in, say Saudi Arabia, this situation will sustain through 2016 and beyond.

Amongst major economies, China’s weakness is only getting worse, with a 7% fall in its highly speculative mainland stock market, the Shanghai Composite, on the 4^th of January.  It necessitated a suspension of trading, and caused sympathetic jitters everywhere else. What will happen in the coming days remains to be seen. China will struggle to keep its $12 trillion economy afloat for some time to come. Let us hope there are no Black Swans coming out of the dragon in 2016.

India, small in comparison, at only $ 2 trillion, is still considered a major economy. Because of its volume energy purchases, it is now being wooed and pursued by producers, from West Asia and beyond.

Qatar, in a pragmatic move, recently halved its gas prices to India, and waived billions in liability payments accrued because we wouldn’t buy its gas at the old prices.

The Modi government is also concentrating on reducing dependence on fossil fuels by ramping up non-polluting solar installations and nuclear power.

But, from the point of view of the voting public, it is the urgent building of massive public works alone that can provide substantial employment today. This means highways, ports, dams, canals, urban renewal - all overdue and wanting. And much depends on the speed of implementation.

Some of this is already happening. A recent Financial Express report indicated that in November 2015 , Rs 31, 250 crores worth of  infrastructure contracts were awarded. The value of the tenders is up 60% over a year ago. But, let us remember, this is movement from a standstill.

To make a real difference, infrastructure building must leap-frog ahead,  using government funding, so that the Modi government can fulfil its key promises of vikas  and acche din.

For: Mail Today

(898 words)

January 5^th 2016

Gautam Mukherjee