Investment Package

Will rejig do wonders?

By Shivaji Sarkar

The Rs 9.2 trillion capital influencing package is apparently a major move to resuscitate the economy. The route is through the banks i.e. increased lending, and highways, as in the infrastructure. Finance Minister Arun Jaitley believes that Rs 6.92 trillion proposed investment on highways and Rs 2.11 trillion bank’ recapitalisation would be a major turning point.
The farmer too has also had a gain as MSPs of wheat by Rs 110 to Rs 1735 a quintal and pulses by Rs 200. This is expected to help improve credit flow to companies from banks weighed down by bad debts and boost public investment. The infrastructure spending to build 83,877 km roads through ‘Bharat Mala’ in the next five years should spread an even money flow across the country.
Further, the roads are expected to create 14 crore mandays. The new focus on MSMEs and planned direct benefit to them should help a struggling sector. In the overall gambit, it should be a new economy linked to growth and increased jobs.
The announcement led to the stock market immediately having a resonant acceptance with a major 435 points rise, 1.33 per cent in BSE sensex and Nifty by 87 points, 0.86 per cent. The PSU index was the star performer with 8 per cent gain, followed by banking, capital goods and infrastructure. The consumer durables fell by 1.31 per cent, health care by 1.11 per cent and realty 0.35. It added to Rs 2 trillion wealth in a day at the stock exchanges. The euphoria is fine but stocks should not be taken as a major indicator.
The Finance Ministry made a long presentation on the state of the economy as Jaitley said: “Our aim is to maintain a high growth economy”. Once again the focus is correct. Spending on roads also has to be prudent. During the past few years technically many km of roads were built but a large part like the Delhi-Agra highway, Delhi-Ambala section and the NH 24 were virtually re-dug in the name of widening these.
The government has to be cautious on such re-investment. Most roads were functional and jam points were largely because of poor planning. The Agra highway is being rebuilt for years by digging up a fine road, so is the Ambala and NH24.
The NH 24 between Nizammuddin Bridge and the UP border were widened to eight lanes over two years back, which was doing fine except three bottlenecks. These could have been redone with least investment. The entire finely built road should not have been re-dug, dumped with avoidable concrete, creating endless traffic snarls, increased journey time and cost. It is taking more time in digging than rebuilding. That is happening in most stretches of the highways.
This is useless expenditure and possibly even the government is not realising that the largesse is being looted by the builders. Addition for lanes may be felt at times. It should be done in a prudent way without hampering the traffic or creating dangerous stretches and destroying what has already been done. Nowhere in the developed world is this done.
Before going for ‘rebuilding’, people of the area should be consulted on how to save on expenditure and do better job without throwing everything haywire as the three stretches mentioned here have done. Tolls are being charged on stretches that are not drivable and these are irrational and the highest in the world as the judicial scrutiny of DND toll-way has exemplified. The developed world spends prudently and keeps toll charges affordable. That is possibly why they are developed. They sparingly spend on re-digging.
There are also flipside to the road development as stretches in the fragile North-East have shown. It has affected flora, fauna and warmed up the region. The JP’s Delhi-Agra-Lucknow and most other expressways have gobbled up prime agriculture land to create behemoths. The government should do a detailed study through open discussion with the people. Development has to be thoughtful. The present mess is the result of bureaucratic hurrying in the past.
Such huge effort certainly needs a fund flow. That is how the recapitalisation of banks has become a priority. The recent over Rs 7 lakh crore NPA and about Rs 5 lakh crore debt that were written off, total of over Rs 12 lakh crore NPA, accumulated between 2008 and 2014, which Jaitley pointed out constricted banks from giving new loans. These included many road projects across the country, including Delhi-Lucknow expressway, which the promoter is now trying to wriggle out as the court orders Rs 2000 crore immediate repayment.
This has also made banks unethical, saddling irrational charges on the customers. If such reckless lending is not stopped, the banking sector is bound to be in crisis. A large part of transactions are likely to move away to other cheaper and faster channels.
The challenge to PSU banks are growing. They have to realise that their best capitalisation is through raising deposits. The policy on taxing deposits, lack of long term deposit plans, policy on taxing deposits, charging bank accounts for transactions are the most imprudent approach. This is driving away depositors, creating social anxiety and put economy at high risk.
Banks are being recapitalised through budgetary support only to the extent of Rs 76,000 crore. The rest would be through bonds and dilution of government stakes in PSU banks to 52 per cent. Many new stakeholders may be the defaulters themselves and possibly with public money. This would put higher commercial risks. In 2015, over Rs 70,000 crore recapitalisation hasn’t helped much.
The best recapitalisation is through efforts to raise deposits, a little time consuming but creates strong fundamentals. This helps banks make innovative planning, simple ways for account-opening, incentivise deposits with higher rates, create competition and improvement in overall health of the banks and economy.
Let banks decide what identity they need or not. Banks are not government resource, as former ministers like P Chidambaram may have considered. These must be treated as people’s benevolent custodians and be allowed freedom of commercial functioning. The PSU banks have acumen and these should be freed of the red tape. Let us rethink about dilution of government stake as well.
The Indian economy has the capacity to reinvent and rejig. The government has to encourage it. A little more rethinking and fine-tuning the Rs 9 lakh crore (trillion) and widening the ambit can do wonders. It is a lot of money and needs careful spending. —- INFA