That Prime Minister Manmohan Singh’s contrarian note—industry’s pessimism today is as out of place as its unbridled optimism in 2007—at his CII address was more than just a pep talk is obvious by looking at a few stylised facts. India’s growth took off in the mid-2000s only when its investments rose and collapsed when, a few years ago, investments began levelling off, and falling as a proportion of GDP. This, in turn, was driven by two factors. In the mid-2000s, overall national savings rose, and these rose primarily due to government dissavings falling. When, a few years ago, government deficits began rising, national savings ratios started falling. Add to this the collapse in the investment climate as all manner of clearances began getting delayed. Fix the two, and the growth problem is a simple maths one—increase the input and the output automatically rises.
So, in his CII speech, the PM focused on the government’s attempts at fiscal correction as well as the steps planned including diesel price hikes and use of Aadhaar-based cash transfers, including those for kerosene. As for investments, it’s worth keeping in mind that even in today’s depressed times, over R30 lakh crore of investment is still taking place. Add to this what the government is trying to clear—stalled projects have risen from around 1% of outstanding projects in March 2008 to around 6% today. The Cabinet Committee on Investments (CCI), it is true, is nowhere near as powerful as it was originally envisaged but, according to a note put out by the CCI, it has already cleared projects worth R74,000 crore. This includes various oil blocks where defence ministry objections had prevented firms from doing exploration—another 31 blocks, the PM said, are to be cleared within the next two weeks. The resolution of the R14,000 crore NTPC North Karanpura project in Jharkhand, pending for 13 years, and steps to streamline environmental and forest clearances for mega power projects are among some of the other measures.
Apart from the CCI process, another big positive is that the SEB debt restructuring plan for R1,20,000 crore of short-term liabilities appears to be taking off now. While the plan has some obvious gaps in terms of ensuring states regularly raise tariffs—the banks are supposed to ensure this, apart from some financial incentives to states—in the immediate short run, it ensures there is enough money in the system to pay power dues and create enough headroom for banks to finance new projects. RBI permission has been got to allow banks to treat infrastructure lending as “secured” under certain circumstances; disinvestment is taking off with the new offer-for-sale (OFS) route working well and there are enough issues in the pipeline to ensure the government meets its FY14 targets. Telecom policy is very tangled but, in some ways, may not be that difficult to resolve with determined leadership. None of this, needless to say, is going to be easy, and getting your eye off the ball is easy in today’s politically surcharged atmosphere. More important, as the Food Security Bill that the government is pushing shows, keeping deficits in check in an election year is a very tough job. As much as industry, the PM’s Cabinet colleagues need to share his vision.