No.s 39 & 40, June 2005
No.s 39 & 40
The Budget includes one more type of capital expenditure: a “Special Purpose Vehicle” (SPV) for funding infrastructural projects that find difficulty in raising resources.1 Chidambaram declared in his Budget speech: “The importance of infrastructure for rapid economic development cannot be overstated. The most glaring deficit in India is the infrastructure deficit.”
This is of course a rather distorted view: the deficits of food and employment are much more glaring. However, there is no doubt that investment in infrastructure is needed for economic activity to grow. The question is, what sort of infrastructure, for what sort of economic activity?
The notion of “infrastructure” being peddled nowadays by neoliberal economists, the media, and Chidambaram is reflected in the following fairly typical passage (from a newspaper editorial urging the rapid building of a Mysore-Bangalore expressway):
Note the complete disjunction between the first sentence and the next two. The first sentence describes the situation of the vast majority of Karnataka’s people – which in fact tells us of the lack of infrastructure. One then expects the writer to suggest that the government invest in irrigation, particularly minor irrigation; this would make a dent in those “high poverty levels”. But no: rural conditions are to be preserved untouched; all that can be done is to set up the infrastructure for IT (“high quality roads and telecom”).
This concept of “infrastructure”, then, is not linked to the requirements of productive activity, especially the productive activity of the majority of Indians. It is first and foremost a means to move in and out of India (physically or electronically), and from metropolis to metropolis in India.
This type of `infrastructure’ recalls the role of the railways under the British Raj, when route alignments and rate structures were such as to make it cheaper to transport goods from the ports to the interior and back rather than between points in the interior. (A.K. Bagchi, The Political Economy of Underdevelopment, p. 86) There are parallels today: Whereas during the last five years over Rs 240 billion has been spent on the National Highways Development Project (largely on the Golden Quadrilateral between the four metropolises), only Rs 115 billion has been spent on the Pradhan Mantri Gram Sadak Yojana, which aims to connect no less than 170,000 unconnected villages with roads.
Similarly, over the last decade telecommunications has seen large investments and rapid growth by private and public sector firms. Although this is concentrated overwhelmingly in the urban areas, the notion is being propagated that mere extension of telephony and internet services to a village brings economic activity and development. The Budget claims that 67,000 villages lack telephony, for which it allocates Rs 12 billion, but almost double the number of villages (125,000) lack electricity itself. The most recent National Sample Survey reveals that 46 per cent of rural households depend on kerosene lanterns as their source of lighting. That percentage is indeed set to grow with the impending breaking-up and privatisation of state electricity boards.
Private investment in infrastructure: against economic efficiency
For all the noise being made about the importance of infrastructure, important elements of infrastructure – electricity and coal, for example – have been starved of capital expenditure during liberalisation. The capital expenditure of the Ministry of Coal was Rs 9.33 billion in 1990-91; the corresponding figure for 2005-06 is zero. The capital expenditure of the Ministry of Power was Rs 24.94 billion in 1990-91; the corresponding figure for 2005-06 isRs 26.52 billion (a huge drop after discounting for inflation). Both these ministries have to raise almost all of their developmental expenditure by borrowing from the market.
Little surprise then that production of coal (including lignite) has grown at the rate of just 3.4 per cent during 1997-98 to 2003-04. Electricity generation (excluding captive units) grew at the rate of only 5.7 per cent per year during 1992-93 to 2003-04, as compared to 9 per cent during the 1980s.
Under-investment has led to shortages, which are in turn being made the excuse for privatisation: Maharashtra recently witnessed riots organised by the Shiv Sena after the electricity board resorted to severe load-shedding. The NCP leader and Union Minister Sharad Pawar, one of the chief culprits of the Enron deal, promptly claimed that the present shortage proved that the Enron project had been justified. The truth, however, was blurted out by the chairman of the Maharashtra State Electricity Board, namely, that there had be no investment by the state government for a decade: “Earlier the Government used to give up to 30 per cent for power in the budget. Now it gives nothing.” (Indian Express, 3/5/05) The situation nationwide is similar: in order to create the environment for private investors in the power sector, public sector investment has been stifled. When, in the wake of the Enron fiasco, private investors held back, overall generation targets were missed.
Infrastructural projects generally require large sums and take a long time to complete. Moreover, it is important to keep the price of infrastructure as low as possible, since the price of infrastructure enters the costs of other firms (for example, the prices of electricity and transport become part of production costs): expensive infrastructure raises prices all round and slows the growth of other sectors. On the other hand, if properly planned, infrastructure will receive a steady stream of revenue. For all these reasons it makes obvious sense to keep infrastructure in the public sector. No private sector firm would be interested in investing large sums and waiting a long time for low returns, however steady they may be.
Yet there is an explicit drive today to attract private investment, including foreign investment, in infrastructure – in power, roads, telecom, oil and now coal. In order to attract such investments, guaranteed rates of return are being provided in some cases (electricity, roads). Potentially very productive oil/gas blocks that could have been developed by ONGC are being handed over to private interests; the oil/gas then are purchased at international prices from the private firm. All these price hikes of infrastructure get passed on to industry and agriculture. Could there be clearer evidence of how the present policies do not aim at greater efficiency of the economy and the promotion of production, but at private profit at the cost of the economy?
Budget 2005-06, like its predecessors, follows this path of neo-liberalism, antagonistic to national interests and the productive activity and well-being of the vast majority. The hike in the Centre’s social services spending is merely a way of prettifying that reality, and facilitating further progress down that path.
1.The SPV is merely another form of government borrowing. The Finance Minister has chosen this form in order to exclude it from the calculation of total government borrowing -- what is known as the “fiscal deficit” -- which international financial institutions and foreign investors demand be reduced. (back)
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