Investment lags in public sector

By S. Swaminathan

A major premise of economic reforms since 1991 has been the gradual substitution of private sector investment for public sector outlays even in critical areas of infrastructure such as power, highways, ports and telecom. Excepting the telecom sector where private investments have made for a visible presence, the expectations regarding an upsurge in private sector investments have not materialised.

Even where foreign investments have come in, as in the Dabhol power project of Enron in Maharashtra, many uncertainties have surfaced on the viability of the projects or conversely the fragility of the policy-frame. The experience overall, during the Ninth Plan, has been none too gratifying on the practical wisdom of the country placing reliance on private investments for filling the conspicuous gaps in infrastructure.

Poor record of implementation

Given the lukewarm response of private capital to policy initiatives in regard to the infrastructure, public investments have become all the more critical. But there are severe fiscal constraints to new investments being made by the public sector as well. Given this situation, there can be little doubt that projects in the public sector that had spilled over from the Eighth Plan (that is, prior to 1997-98) ought to be expedited. That the woeful tale of unfinished public sector projects does not seem to have an ending has again been confirmed by the Annual Report (2000-2001) of the Union Ministry of Statistics and Programme Implementation.

Incidentally, India perhaps is the only country where there is a separate ministry for programme implementation! In all other countries, the word ``government'' is identified as much with policies as with their implementation! It is a queer comment on the Indian parliamentary system that governments often get along with announcements but without commitment to the requisite action programme!

The opening stock

At the beginning of the Ninth Plan (April 1, 1997), there were 324 projects for completion during 1997-2002, with an estimated cost of Rs. 124,986 crores. To these have been added 128 new projects costing Rs. 16,605 crores. Of the 324 projects at the beginning of the Plan period, 214 are expected to be completed during the Plan period, at a total cost of Rs. 56,446 crores. The Ministry admits that 28 projects with a capital cost of Rs. 16,879 crores are likely to spill over from the Ninth Plan, that is, they will be carried over beyond March 31, 2002. That is not very surprising given the long record of time and cost overruns of public sector projects in the past. What is most disconcerting is that as on November 1, 2000 there were 214 projects costing Rs. 56,446 crores that are required to be completed before March 31, 2002 - a truly Himalayan proposition!

Time and cost overruns

Over the decades, what has dogged the public sector, among other factors, is the twin vulnerability of faulty formulation and tardy implementation of projects. Despite all the rhetoric of zero-base budgeting, the problem of time and cost overruns has not abated. As on November 1, 2000, 462 projects on the Ministry's monitor screen had suffered an overall cost overrun of 17.5 per cent. Of these, 201 had suffered from cost escalation by as much as 36.7 per cent. The worst affected were the ministries of Railways, surface transport, power and petroleum.

According to the analysis of ongoing projects made by the Project Monitoring Division (PMD) of the Ministry of Programme Implementation, ``Time overrun is the most serious problem because, apart from upsetting the Plan targets, it also leads to cost overrun.'' Eureka! Nor is the amplification of the linkage very useful. ``With time overrun, cost goes up on account of inflationary pressure, exchange rate variations, higher incidence of interest during construction and higher incidence of administrative overheads.'' But what causes time overrun?

The PMD's analysis leaves little doubt about pervasive incompetence at the bureaucratic level. ``The major causes of time overrun include sanction of projects without firming up of techno-economic parameters, sanction in excess of financial resources, uncertainty about the availability of forest and non- forest land, contractual problems, and poor performance of consultants, vendors and contractors. The other factors include delay in obtaining clearances, court cases, inadequate infrastructure support and poor law and order situation in certain parts of the country.''

Remedial bureaucratisation?

The problems of time and cost overruns in public sector projects have proved almost perennial. Yet stodgy contrivances such as inter-ministry standing committees and the Centre's MOUs with particular public sector enterprises are all that the Government seems to be setting up. That a proliferation of bureaucratic committees would not help where a dispassionate weeding out of unviable projects is inescapable, is a lesson which the policymakers seem unwilling to learn.

There is reason to believe that the restructuring of public sector enterprises involving the granting of autonomy to professional managements and liberating them from the stranglehold of the ministries concerned, is vitally linked to the task of ensuring that investment projects are not further stymied and that infrastructural inadequacies are not prolonged to the detriment of the whole economy.

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