Focus on public spending

THE GOVERNMENT SEEMS to have finally zeroed in on boosting public investment as the immediate strategy for reviving a sagging economy. This means that the misleading speculation that an agricultural bounty in 2001-02 will lead an economic revival has mercifully been given up. But the question is if this new emphasis on public investment is merely meant to boost private sector confidence or if the Central Government is serious about ending the decade-long neglect of public investment in the infrastructure sector. If the focus on public spending is genuine, the next question is if the present Government can demonstrate the resolve needed to carry through its latest promise. Unfortunately, the NDA Government's recent record in economic policy decision-making and implementation does not inspire much confidence that it will find the means to spend its way out of the current slowdown.

There is a strong case for increasing public investment since, even after a decade of liberalisation, private investment is to a large extent still predicated on Government capital expenditure. This is so not because it is still only public investment that can organise the large and lumpy outlays required in infrastructure but also because contrary to much thinking within the Government, public spending crowds in rather than pushes out private investment. Yet, Central Government capital expenditure as a proportion of GDP is today almost two percentage points less than what it was in 1991. This decline in public investment has also had disastrous consequences for growth in agriculture and the rural economy. There is no constraint on funds, for while the Central Government does have a resource problem the financial sector is flush with funds for which the only investible option today is paradoxically Government securities. And there need not be any fear of public investment stoking the fires of inflation since 62 million tonnes of food stocks and $34 billions of foreign exchange are sufficient to stamp out any such sparks. Some detailed proposals have shown that the commercial returns to bank lending to public sector outlays in railways, electricity generation and urban transport will be higher than investment in Government securities. Large outlays here should revive the demand for intermediate goods such as cement, steel and capital goods and eventually the demand for consumer goods as well. The big `if' is of course that this spending will not be more money down the drain. It has therefore been simultaneously argued that a boost to public sector investment over the medium term must be accompanied by a re-balancing of tariffs in each sector and organisational changes leading to an improvement in management.

But while ``kick-starting'' the economy with higher public investment has been talked about for some months now, it looks like no arm of the Central Government has done the necessary homework. All that we have now is the formation of yet another Cabinet Committee, this one on economic strategy. The discussion is also still in vague terms like accelerating implementation of identified projects or getting the Department of Programme Implementation to more closely monitor ongoing public sector projects. It does not help either to make meaningless promises, as the Union Finance Minister, Mr. Yashwant Sinha, has now made, to spend Rs. 75,000 crores on reviving the economy. To put some perspective on this amount, the Central Plan expenditure for all of 2001-02 has been budgeted at just Rs. 35,000 crores. And proposals that have been drawn up for additional public spending of Rs. 75,000 crores have had a time-frame of five years and not the year ahead. It is such unconvincing statements that give the impression that in public investment as in other areas of the economy, the Government is not able to come up with a well- formulated package for economic revival.

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Section  : Opinion
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