Vinayak Chatterjee, an infrastructure expert, writing in the Business Standard ( March 15, 2010) mentions that the total size of the Union Budget is about Rs 11.09 lakh crore. The infrastructure allocation is thus 16 per cent of the Union Budget. Of the Rs 373,000 crore of Plan expenditure, the infrastructure allocation is Rs 1.73 lakh crore or 46 per cent of Plan allocation. So it would seem that the government is taking infrastructure very seriously indeed.
But how much of these allocations actually result in the creation of infrastructure assets? For example, the allocation of Rs 40,100 crore for the National Rural Employment Guarantee Scheme (NREGS) in the Rural Development Section, does not all go towards creating infrastructure. Probably only a very small proportion does. But as Chatterjee mentions, this is the way the finance ministry currently "defines" infrastructure!
As per the 11th Plan, the nation needs $500 billion (Rs 22.5 lakh crore), or $100 billion per annum. This translates into a requirement of Rs 450,000 crore per annum. Of this, the Union Budget is able to provide for Rs 173,000 crore, or roughly 38 per cent. Chatterjee argues that this is very much in order, considering 30 per cent is slated to come from public private partnerships (PPP), and the balance of 32 per cent from states and off-Budget resources. I tend to disagree. Much of the so called budget allocation will not lead to capital formation but will go into revenue spending or in a worst case scenario, end up as leakages.
I have a simple question. Why does it need someone like Chatterjee to do all these calculations and figure out what is going on? If Pranab Mukherjee is truly convinced that what he is doing for infrastructure is enough and far more than any other budget in recent years, why could he not give us all the relevant facts? The very fact that we still do not know for sure what are the tangible outcomes of a flagship program like NREGS shows that the government has no accountability whatsoever. It can keep rattling off figures and we would never know what is the ground reality.
Tuesday, March 16, 2010
Friday, March 12, 2010
The Non Operating Income Trap
Writing in Business Standard (March 11, 2010), the reputed economist, Shankar Acharya has reiterated a basic flaw in the government’s approach to fiscal consolidation. The 1.4 % reduction in the fiscal deficit in the coming year will rely heavily on a few items: an additional Rs 15,000 crore of PSU disinvestment proceeds, Rs 35,000 crore of the much-postponed 3G telecom auction proceeds, about Rs 20,000 crore saved on account of no Pay Commission arrears, about Rs 15,000 crore saved on account of no loan waiver payments and Rs 10,000 crore saved on account of no oil/fertiliser bonds. Together, these five items add up to Rs 95,000 crore or 1.4 per cent of fiscal deficit ratio improvement claimed by the Finance Minister!
But many of these items are one-off in nature. And in corporate language they would be called non operating income. In other words, the worry is how will further deficit cuts be achieved?
The bond market is usually a powerful judge of government policies. In the second week of March, the 10-year benchmark interest rate crossed 8 per cent, reflecting the concerns of that market. The hardening of yields is also a sign that markets are anticipating higher inflation.
Meanwhile, the government has sought to assure industry that there will be no crowding out effect due to government borrowing. But Acharya mentions that unlike last year, excess liquidity may not remain as the RBI will most likely continue its exit from its expansionary policy introduced at the peak of the global meltdown in 2008. At the same time, commercial banks are already holding almost 30 per cent of their assets in the form of government bonds. They may have little appetite for more such assets, especially when there is a risk of capital losses due to higher interest rates. So, the only way to offload government paper may be to offer higher interest rates. This will drive up interest expenses for the government adding up to the structural deficit. More importantly, by increasing the cost of funds, investment and growth may also be affected.
In other words, the budget has painted a far more optimistic scenario than would be justified if we take into account the ground realities.
But many of these items are one-off in nature. And in corporate language they would be called non operating income. In other words, the worry is how will further deficit cuts be achieved?
The bond market is usually a powerful judge of government policies. In the second week of March, the 10-year benchmark interest rate crossed 8 per cent, reflecting the concerns of that market. The hardening of yields is also a sign that markets are anticipating higher inflation.
Meanwhile, the government has sought to assure industry that there will be no crowding out effect due to government borrowing. But Acharya mentions that unlike last year, excess liquidity may not remain as the RBI will most likely continue its exit from its expansionary policy introduced at the peak of the global meltdown in 2008. At the same time, commercial banks are already holding almost 30 per cent of their assets in the form of government bonds. They may have little appetite for more such assets, especially when there is a risk of capital losses due to higher interest rates. So, the only way to offload government paper may be to offer higher interest rates. This will drive up interest expenses for the government adding up to the structural deficit. More importantly, by increasing the cost of funds, investment and growth may also be affected.
In other words, the budget has painted a far more optimistic scenario than would be justified if we take into account the ground realities.
More about PSU disinvestment
John Samuel Raja of Outlook Business (March 20, 2010) has provided a comprehensive picture of PSU disinvestments in our country. Currently there are about 808 PSUs. Their revenues add up to about Rs. 20,55,000 crores and their net profit to about Rs. 107,000 crores. Their assets are currently valued at about 103% of GDP. But their overall financial performance is disappointing. As many as 360 of them posted a loss in 2008-09. Some 212 PSUs posted profits of below Rs. 10 crores. The net profit was only 1.68% of assets for the PSUs as a whole. The corresponding figure for the BSE Sensex companies is 4.2%.
The PSUs which have been privatized seem to be doing well. Balco and Hindustan Zinc have been turned around by Sterlite. Maruti has also done well after the government offloaded its stake. The same goes for CMC, IPCL, VSNL and Jessop. In contrast, where small stakes have been sold and the government retains control, the functioning has become more transparent and accountable but the improvement has been less spectacular.
Outlook Business quoted Vijay Kelkar, Chairman of the 13th Finance Commission: “The motivation for disinvestment or privatization should not be narrowly seen as being only about maximizing proceeds from the sale of assets. The real big gains come from the full picture. We gain when the private sector attains higher productivity. And this happens even with mere disinvestment, but it happens much more strongly with privatization.”
It is estimated that a 10% stake sale in all the listed PSUs alone could result in revenues of Rs. 180,000 crores. That would help bridge almost two thirds of the revenue deficit. More importantly, by disinvestment, the government can free up resources that can be better utilized for education, health care and various items of physical infrastructure.
Clearly we need a much bolder vision than what the finance minister has articulated in the recent budget.
The PSUs which have been privatized seem to be doing well. Balco and Hindustan Zinc have been turned around by Sterlite. Maruti has also done well after the government offloaded its stake. The same goes for CMC, IPCL, VSNL and Jessop. In contrast, where small stakes have been sold and the government retains control, the functioning has become more transparent and accountable but the improvement has been less spectacular.
Outlook Business quoted Vijay Kelkar, Chairman of the 13th Finance Commission: “The motivation for disinvestment or privatization should not be narrowly seen as being only about maximizing proceeds from the sale of assets. The real big gains come from the full picture. We gain when the private sector attains higher productivity. And this happens even with mere disinvestment, but it happens much more strongly with privatization.”
It is estimated that a 10% stake sale in all the listed PSUs alone could result in revenues of Rs. 180,000 crores. That would help bridge almost two thirds of the revenue deficit. More importantly, by disinvestment, the government can free up resources that can be better utilized for education, health care and various items of physical infrastructure.
Clearly we need a much bolder vision than what the finance minister has articulated in the recent budget.
Beyond the Budget 2010
Bibek Debroy one of my favourite economists (Business Today, March 21, 2010.) has come out with a wish list of items which should get implemented by the government in the next 4 years. I am listing below a few of them.
a) Budget speeches should be restricted to 500 words and seven minutes.
b) The fiscal deficit should come down to 3 percent of GDP and revenue deficits should come down to 0 per cent.
c) All off-Budget items must form a part of deficit calculations. All personal and corporate tax rates must be standardized, with no exemptions. All exemptions must go for indirect taxes too.
d) Subsidies must be replaced by direct, but conditional cash transfers. Using UID numbers and based on individual socio-economic criteria, below poverty line (BPL) households must be unambiguously identified. Non BPL households must not receive subsidies.
e) Over time, the secrecy surrounding the budget must go. The budget must be placed in the public domain even before it is placed before Parliament.
I am adding to Debroy’s list.
a) From now on, the finance minister must spend less time on grandiose promises and instead talk about what happened during the year that passed, what was achieved, what could not be completed and so on.
b) The finance minister should not throw up numbers that by themselves are prone to misinterpretation. Thus he must not just say that he is allocating say Rs 30,000 crores for roads. He must also indicate how much of road construction the country needs, how many kilometers of road can be constructed with Rs 30,000 crores, how much China is spending on roads every year, etc. Then the public can make an informed judgment about whether the allocation is adequate or justified.
c)The government is spending the tax payer’s money. So we have every right to know how our money is being spent. Which means fiscal discipline is crucial. The non plan expenditure must be subject to stringent controls. The minister should not just mention that the revenue deficit has been cut to 4% of GDP. He must indicate what items have been cut, what items remain. Then the public can understand whether fiscal discipline is being implemented cosmetically or by cutting unproductive expenditure.
d) The Finance Minister himself need not present the budget if there is a danger of putting people to sleep. A smart bureaucrat who is an excellent communicator can be chosen for the task. The budget should be presented in such a way that it is inspiring and impactful even if it does not throw up surprises. So I would probably suggest about 20-25 minutes may be given to make the presentation.
a) Budget speeches should be restricted to 500 words and seven minutes.
b) The fiscal deficit should come down to 3 percent of GDP and revenue deficits should come down to 0 per cent.
c) All off-Budget items must form a part of deficit calculations. All personal and corporate tax rates must be standardized, with no exemptions. All exemptions must go for indirect taxes too.
d) Subsidies must be replaced by direct, but conditional cash transfers. Using UID numbers and based on individual socio-economic criteria, below poverty line (BPL) households must be unambiguously identified. Non BPL households must not receive subsidies.
e) Over time, the secrecy surrounding the budget must go. The budget must be placed in the public domain even before it is placed before Parliament.
I am adding to Debroy’s list.
a) From now on, the finance minister must spend less time on grandiose promises and instead talk about what happened during the year that passed, what was achieved, what could not be completed and so on.
b) The finance minister should not throw up numbers that by themselves are prone to misinterpretation. Thus he must not just say that he is allocating say Rs 30,000 crores for roads. He must also indicate how much of road construction the country needs, how many kilometers of road can be constructed with Rs 30,000 crores, how much China is spending on roads every year, etc. Then the public can make an informed judgment about whether the allocation is adequate or justified.
c)The government is spending the tax payer’s money. So we have every right to know how our money is being spent. Which means fiscal discipline is crucial. The non plan expenditure must be subject to stringent controls. The minister should not just mention that the revenue deficit has been cut to 4% of GDP. He must indicate what items have been cut, what items remain. Then the public can understand whether fiscal discipline is being implemented cosmetically or by cutting unproductive expenditure.
d) The Finance Minister himself need not present the budget if there is a danger of putting people to sleep. A smart bureaucrat who is an excellent communicator can be chosen for the task. The budget should be presented in such a way that it is inspiring and impactful even if it does not throw up surprises. So I would probably suggest about 20-25 minutes may be given to make the presentation.
Wednesday, March 10, 2010
The need for a new approach to budgeting
The problems in Greece have alerted us to a fundamental problem with government accounting. It lacks transparency. The Greeks fudged their way through the process of meeting the Maastricht deficit/ debt criteria in order to gain entry into the Eurozone. Finally they have been caught.
What about India? How transparent are the Government accounts? Take the recent budget. Not a word about what was promised last year , what has been delivered during the year that has passed, why there were shortfalls and so on. In many cases such as infrastructure, highly aggregated figures have been provided that make it quite difficult to understand and assess the quality of spending. And the fact that the unproductive revenue deficit remains as stubborn as ever has been conveniently brushed under the carpet. Year after year, we hear the Finance Minister making pompous statements about the future. Each year, the Finance Minister talks about how he has put in place a budget that will promote inclusive growth and so on. As though his grandiose statements by themselves will generate growth.
And when all this happens, our media and business with some rare exceptions keep applauding from the sidelines. One well known personality even described the latest budget as the first non populist budget after independence.I have seen few articles in the media that have pressed for more information from the Finance Minister.
There is a saying that the people get the government they deserve. India is a shining example.
What about India? How transparent are the Government accounts? Take the recent budget. Not a word about what was promised last year , what has been delivered during the year that has passed, why there were shortfalls and so on. In many cases such as infrastructure, highly aggregated figures have been provided that make it quite difficult to understand and assess the quality of spending. And the fact that the unproductive revenue deficit remains as stubborn as ever has been conveniently brushed under the carpet. Year after year, we hear the Finance Minister making pompous statements about the future. Each year, the Finance Minister talks about how he has put in place a budget that will promote inclusive growth and so on. As though his grandiose statements by themselves will generate growth.
And when all this happens, our media and business with some rare exceptions keep applauding from the sidelines. One well known personality even described the latest budget as the first non populist budget after independence.I have seen few articles in the media that have pressed for more information from the Finance Minister.
There is a saying that the people get the government they deserve. India is a shining example.
Monday, March 08, 2010
Inadequate allocation for Infrastructure in India's budget
T N Ninan writing in Business Standard, 6-7 March 2010 ( Mamata's China tour) has nicely captured a fundamental flaw in the recent budget: the inadequate allocation for Railways. I mentioned in an earlier blog that too much has been made out of the allocation of about Rs 173,000 crores for infrastructure. Ninan has given useful comparative figures about China to drive home the point that the allocation is indeed puny.
China has connected Beijing / Shanghai, by high speed rail to Guangzhou, Wuhan, Zhengzhou, Tianjin, Nanjing, Xian, Taiyuan and other cities in China.These high-speed rail services operate at 350 km to 400 km per hour and extend over 3,300 km of track. The Middle Kingdom plans to offer some 40 such inter-city train services (including a new Beijing-Shanghai link), stretching over a total of 13,000 km of track, by 2012 — almost twice the distance of India’s “golden quadrilateral”. Even China's non-high speed trains now run at 200 km per hour or more.
In contrast, the best speed on Indian Railways has remained unchanged at about 130 km per hour for four decades. Some years back the Indian rail system was bigger than China’s. But now the Chinese rail system carries four times as much freight as Indian railways do. The gap will increase further. In 2009, China increased its investment in its railways by a staggering 80 per cent to about Rs 400,000 crore. Further increases in capital outlay are coming (Rs 550,000 crore in 2010).
Now compare these outlays with India's allocation of Rs 173,000 crores for total infrastructure. We can understand how our politicians make misleading statements and get away with them.
China has connected Beijing / Shanghai, by high speed rail to Guangzhou, Wuhan, Zhengzhou, Tianjin, Nanjing, Xian, Taiyuan and other cities in China.These high-speed rail services operate at 350 km to 400 km per hour and extend over 3,300 km of track. The Middle Kingdom plans to offer some 40 such inter-city train services (including a new Beijing-Shanghai link), stretching over a total of 13,000 km of track, by 2012 — almost twice the distance of India’s “golden quadrilateral”. Even China's non-high speed trains now run at 200 km per hour or more.
In contrast, the best speed on Indian Railways has remained unchanged at about 130 km per hour for four decades. Some years back the Indian rail system was bigger than China’s. But now the Chinese rail system carries four times as much freight as Indian railways do. The gap will increase further. In 2009, China increased its investment in its railways by a staggering 80 per cent to about Rs 400,000 crore. Further increases in capital outlay are coming (Rs 550,000 crore in 2010).
Now compare these outlays with India's allocation of Rs 173,000 crores for total infrastructure. We can understand how our politicians make misleading statements and get away with them.
Tuesday, March 02, 2010
The fallacy of public sector disinvestment
In his recent budget, Mr Pranab Mukherjee announced that through disinvestment of public sector undertakings ( PSUs) , he would be able to cut down the fiscal deficit significantly. The Finance Minister has projected that he will raise about Rs 40,000 crores through disinvestment in the coming fiscal year.
Immediately after he made the announcement there was an intense debate in the media about whether the estimate was too optimistic. I would suspect the projection is indeed too optimistic for a government which in the recent past has been tentative when it comes to bold economic reforms.
But I have a more basic objection to the money from disinvestment being used to reduce the fiscal deficit. As I mentioned in an earlier blog, almost 73 % of the fiscal deficit is made up by the revenue deficit. And revenue expenditure items are bad for the economy as they do not create long term income generating assets. So what the finance minister is telling us is that he will sell the family silver to meet current consumption needs.
Let me explain this point with an analogy. When we middle class people sell a property, it is usually to buy another property. if we do not buy another property, we would at least put the money in a long term investment that will yield good returns over a period of time. We don't sell our property to land up in the pub or shopping mall everyday! Nor do we do so to go on an expensive foreign holiday.
Another misleading argument given by a leading business magazine in the country is that disinvestment of PSUs will lead to wealth transfer from the government to the public. That can happen only if the Government starts selling its stake in PSUs at artificially low prices. Why should anyone sell the family silver at distressed prices? When divesting, the Government's concern should not be with wealth transfer. It should be with getting the best possible price. After all, the wealth of the PSUs belongs to the entire nation. if the Government sells off its stake at unrealistically low prices, the people who benefit will be the top 5% of the income group. Whereas if the Government gets a good price, it will have more money available to eliminate unproductive expenses and also deploy in schemes which can help the poor.
What should the Government actually do with the disinvestment proceeds? I think the best thing it could do is to reduce the debt burden which has grown to humongous proportions over time. Reducing the debt burden will bring down the interest outflows which today constitute the biggest expenditure item in the budget.In contrast, using the disinvestment proceeds to fund the revenue deficit would be unethical and bad for the economy. It would violate the basic principles of fiscal discipline.
Immediately after he made the announcement there was an intense debate in the media about whether the estimate was too optimistic. I would suspect the projection is indeed too optimistic for a government which in the recent past has been tentative when it comes to bold economic reforms.
But I have a more basic objection to the money from disinvestment being used to reduce the fiscal deficit. As I mentioned in an earlier blog, almost 73 % of the fiscal deficit is made up by the revenue deficit. And revenue expenditure items are bad for the economy as they do not create long term income generating assets. So what the finance minister is telling us is that he will sell the family silver to meet current consumption needs.
Let me explain this point with an analogy. When we middle class people sell a property, it is usually to buy another property. if we do not buy another property, we would at least put the money in a long term investment that will yield good returns over a period of time. We don't sell our property to land up in the pub or shopping mall everyday! Nor do we do so to go on an expensive foreign holiday.
Another misleading argument given by a leading business magazine in the country is that disinvestment of PSUs will lead to wealth transfer from the government to the public. That can happen only if the Government starts selling its stake in PSUs at artificially low prices. Why should anyone sell the family silver at distressed prices? When divesting, the Government's concern should not be with wealth transfer. It should be with getting the best possible price. After all, the wealth of the PSUs belongs to the entire nation. if the Government sells off its stake at unrealistically low prices, the people who benefit will be the top 5% of the income group. Whereas if the Government gets a good price, it will have more money available to eliminate unproductive expenses and also deploy in schemes which can help the poor.
What should the Government actually do with the disinvestment proceeds? I think the best thing it could do is to reduce the debt burden which has grown to humongous proportions over time. Reducing the debt burden will bring down the interest outflows which today constitute the biggest expenditure item in the budget.In contrast, using the disinvestment proceeds to fund the revenue deficit would be unethical and bad for the economy. It would violate the basic principles of fiscal discipline.
Monday, March 01, 2010
How non plan expenditure is wasteful
In my earlier blogs, I have mentioned that non plan expenditure is wasteful. Let us examine a few figures to understand this point.
The recent budget has earmarked Rs 735,657 towards non plan expenditure. Debt servicing accounts for Rs 248,664 crores , defence (revenue expenditure) for Rs 87,344 crores, subsidies for Rs 116,224 crores and pensions for Rs 42,840 crores. These are all expenses that do not really contribute to the creation of long term income generating assets. There are many other non productive items but I have only mentioned some of the more important ones. If our government is serious about fiscal discipline, it should make some efforts to control them. True in the recent budget, some effort has been to cut subsidies ( by about Rs 15,000 crores ) and defence services (by about Rs 1000 crores). But this is not enough. Meanwhile, the debt servicing burden has increased by about Rs 30,000 crores over the past year. Over the same period, the total non plan expenditure has increased by about Rs 30,000 crores.
These figures show that a lot more has to be done to bring back fiscal discipline.
The recent budget has earmarked Rs 735,657 towards non plan expenditure. Debt servicing accounts for Rs 248,664 crores , defence (revenue expenditure) for Rs 87,344 crores, subsidies for Rs 116,224 crores and pensions for Rs 42,840 crores. These are all expenses that do not really contribute to the creation of long term income generating assets. There are many other non productive items but I have only mentioned some of the more important ones. If our government is serious about fiscal discipline, it should make some efforts to control them. True in the recent budget, some effort has been to cut subsidies ( by about Rs 15,000 crores ) and defence services (by about Rs 1000 crores). But this is not enough. Meanwhile, the debt servicing burden has increased by about Rs 30,000 crores over the past year. Over the same period, the total non plan expenditure has increased by about Rs 30,000 crores.
These figures show that a lot more has to be done to bring back fiscal discipline.
Non Plan and Plan expenditure
In an earlier blog, I mentioned that the quality of spending is as important as the quantum. In the recent budget, the total plan expenditure is only Rs 373,092 crores. Out of this Rs 315,125 crores come under revenue spending and only Rs 57,967 crores come under capital spending.The non plan expenditure is as high as Rs 735,657 crores of which only Rs 92,508 crores come under capital spending. In general, non pan expenditure is wasteful stuff. Similarly revenue expenditure does not lead to long term income generating assets. In short, of the total expenditure of about Rs 11,08,749 crores, only about Rs 57,967 crores can be considered value adding. If this is the meaning of fiscal discipline, then there must be something wrong somewhere.
The Revenue deficit problem
Mythili Bhusnurmath, writing in The Economic Times, 1 Mar 2010,has come up with what looks to me to be one of the most incisive pieces of analysis on the Union Budget, 2010. While Finance Minister Mr Pranab Mukherjee has given the impression that the fiscal deficit is under control, what has been overlooked by most analysts is that the more dangerous revenue deficit is still far too high.
Revenue deficit as the name suggests is the gap between revenue receipts and revenue expenditure. By definition, revenue items do not lead to the creation of long term income generating assets.
As a proportion of the fiscal deficit, the revenue deficit has increased from just 41% in 2007-08 to 79% in the revised estimates for 2009-10 , and is expected to go down only marginally to 73% in 2010-11. So during the current year, out of every Rs 100 borrowed by the government, Rs 73 will be spent on consumption. Assuming an average interest rate of 8% on government borrowing , ie an interest outlay of Rs 8 ( on the borrowed amount of Rs 100), the government must earn a return of 8/27 or almost 30% on the remaining amount to be able to just meet its interest costs.
This kind of return would be a dream for even the most efficient private sector company. So, it is quite absurd to think that the government will be able to generate this kind of return. In short, the government will fall into a debt trap having no option but to borrow more and more simply to repay its loans.
As Ms Bhusnurmath has put it aptly, “ When a private party does this, we call it a Ponzi scheme and are quick to condemn it. But when the government does it, we fail to sit up and take notice.”
Revenue deficit as the name suggests is the gap between revenue receipts and revenue expenditure. By definition, revenue items do not lead to the creation of long term income generating assets.
As a proportion of the fiscal deficit, the revenue deficit has increased from just 41% in 2007-08 to 79% in the revised estimates for 2009-10 , and is expected to go down only marginally to 73% in 2010-11. So during the current year, out of every Rs 100 borrowed by the government, Rs 73 will be spent on consumption. Assuming an average interest rate of 8% on government borrowing , ie an interest outlay of Rs 8 ( on the borrowed amount of Rs 100), the government must earn a return of 8/27 or almost 30% on the remaining amount to be able to just meet its interest costs.
This kind of return would be a dream for even the most efficient private sector company. So, it is quite absurd to think that the government will be able to generate this kind of return. In short, the government will fall into a debt trap having no option but to borrow more and more simply to repay its loans.
As Ms Bhusnurmath has put it aptly, “ When a private party does this, we call it a Ponzi scheme and are quick to condemn it. But when the government does it, we fail to sit up and take notice.”
Projected revenues may not materialise
After the budget weekend, people have started analyzing the various proposals more deeply. It seems the revenues on account of the sale of 3G licenses may be less than projected to the extent of Rs 5000-10,000 crores or more. These doubts have risen because only three licenses are being auctioned instead of the original plan for four. The auction for the fourth slot has been postponed as the defence ministry has still not released the spectrum/radio frequencies. This may happen only in 2013.
The quality of Government spending is also important
Fisal discipline does not only mean reducing the gap between revenues and expenses. It also means cutting unproductive spending and raising productive spending. A good example of productive expenditure is infrastructure. It is estimated that a Rupee invested in highways can create Rs 7 of economic value.
Much has been made out of the fact that the Finance Minister has allocated about Rs 173,000 crores for infrastructure in the recent budget. But is this such a big deal? We are probably 40,000 - 50,000 km of highways short today, according to recent indications given by the Highways Minister, Mr Kamal Nath. To build a km of four lane highway it costs around Rs 8-9 crores. And to build a six lane highway, the amount would be about Rs 14 crores. Let us take an average of Rs 10 crores per km. So buiding highways itself calls for about Rs 400,000-500,000 crores of spending.
Mr Pranab Mukherjee's budget has allotted Rs 19,894 crores for road infrastructure. No doubt it is an increase of 13% over last year. But the amount will be sufficient to build only about 2000 km of highway. While the private sector will also chip in, we all know that the government has to lead the way in road construction. And our target is 50,000 km , not 2000km!
Similarly, an amount of Rs 16,752 crores ( increase of Rs 950 crores over the previous year) has been allotted for expansion of the railway network. This amount too looks grossly inadequate when we consider that the railways remain the lifeline for millions of people in the country. The Railways also remain the most cost effective mode of transporting cargo over large distances on land.
All this goes to show that the budget has serious lacunae. Unfortunately, the media has not bothered to drill deeper and do a rigorous analysis of the infrastructure proposals.
Much has been made out of the fact that the Finance Minister has allocated about Rs 173,000 crores for infrastructure in the recent budget. But is this such a big deal? We are probably 40,000 - 50,000 km of highways short today, according to recent indications given by the Highways Minister, Mr Kamal Nath. To build a km of four lane highway it costs around Rs 8-9 crores. And to build a six lane highway, the amount would be about Rs 14 crores. Let us take an average of Rs 10 crores per km. So buiding highways itself calls for about Rs 400,000-500,000 crores of spending.
Mr Pranab Mukherjee's budget has allotted Rs 19,894 crores for road infrastructure. No doubt it is an increase of 13% over last year. But the amount will be sufficient to build only about 2000 km of highway. While the private sector will also chip in, we all know that the government has to lead the way in road construction. And our target is 50,000 km , not 2000km!
Similarly, an amount of Rs 16,752 crores ( increase of Rs 950 crores over the previous year) has been allotted for expansion of the railway network. This amount too looks grossly inadequate when we consider that the railways remain the lifeline for millions of people in the country. The Railways also remain the most cost effective mode of transporting cargo over large distances on land.
All this goes to show that the budget has serious lacunae. Unfortunately, the media has not bothered to drill deeper and do a rigorous analysis of the infrastructure proposals.
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