PhDs and learned papers dwell on how timely decision-making at different points of our economic history have spurred growth. Examples relate to the Rajiv Gandhi era of the late eighties that saw market-friendly stances, or the famous early-nineties Narasimha Rao-Manmohan Singh “delicensing” era, or turn-of-the-century Atalji’s bharat-joro National Highways Development Programme. Such economic critiques have documented pro-active political decision-making and praised the “cause-effect” relationship.
Most of them tend to be positive and laudatory for two reasons. The superficial reason is that resident and non-resident economists wish to catch the eye of the government in power in the hope of prestigious “policy” positions to cap their illustrious academic careers. The other reason is more fundamental, and that is the difficulty of studying, analysing and professionally concluding on a “no cause-what effect” scenario. P V Narasimha Rao is alleged to have wryly remarked that: “Not taking a decision is itself a decision.” In that case, economists should be able to decipher the cost or benefit of indecision, or more starkly, decision-paralysis, and provide research-based pointers to the commonly-held intuitive position right now that delayed or non-existent decision-making in government is one of the principal causes for the slowdown. Or DPLS, Decision Paralysis Linked Slowdown.
To delve further on DPLS, it is useful to view economic activity as “market-facing” or “government-facing”.
Toothpaste, shoes, clothes, food, travel, movie-tickets are market-facing. As long as the economy continues to move ahead at an eight per cent-plus rate of growth, this demand is likely to persist and such “consumer-led” sectors are unlikely to, in the short term, be greatly affected by lack of government decision-making. Latest evidence points to a certain level of inflation-induced down-trading in fast moving consumer goods (FMCG), but no significant drop in overall volumes. Large swathes of agriculture, services and manufacturing also fall in this “market-facing” bucket, where demand has its own momentum.
The other bucket is “government-facing” — Bucket G. Here are sectors like infrastructure, infrastructure derivatives (like construction equipment, transformers) and essential intermediates (like hydrocarbons, mining, fertiliser, cement and steel) in which fresh capacities and new activity are hugely dependant on government decision-making. Industries in Bucket G are precisely those that provide a huge fillip to investment-led growth.
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This is where the problem lies.
Anecdotal evidence first. The head of a large well-known infrastructure finance company laments that not a single proposition of any significance has come up for funding in the last four months. Another power developer laments that implementation is way behind schedule on account of lack of “sarkari” decision-making on multiple fronts: clearance for a private railway track to bring coal to the plant, fuzziness on fuel linkage, lack of movement on signing a power purchase agreement (PPA) and acquisition of land. Ask any developer or supplier in Bucket G and the lament is similar and universal — be it the pace of implementation of the Dedicated Freight Corridor or engine-purchase request for proposals (RFP) by Railways, or lack of clarity on bidding procedures for ports. One of the more popular dirges is the three-quarters long and continuing vacancy of the post of chairman in the National Highways Authority of India (NHAI) — the one institution that is supposed to be the mover and shaker of the world’s largest Public-Private Partnership (PPP) programme in roads!
The best “researched” evidence is by Mahesh Vyas of the Centre for Monitoring Indian Economy (CMIE) in the Financial Express article “Where have all the investments gone?” (May 3). In the article he points out that the average value of new investment announcements in the past three quarters at Rs 3 trillion per quarter is nearly half the Rs 5.8 trillion per quarter average in the preceding three quarters. And this is mostly due to the hold-up of large-ticket investments in Bucket G sectors. Daily newspapers are full of the reasons for delay and do not need further elaboration. Quite often, it is also about lack of bandwidth for economic issues — a PM-chaired meeting on coal-power gridlock was postponed four times.
Is this not a high cost for the economy? It sure is. Way back in the late nineties, Chidambaram at a Fund-Bank meeting in Washington had said logjams in Indian infrastructure were leading to a loss of almost two per cent in GDP. That observation had 50 years of neglect of infrastructure behind it. So what is decision paralysis costing us now? The government-facing Bucket G sectors of infra, infra-derivatives and universal intermediates account for a fair chunk of our GDP. Economists should be able to calculate the cost to the economy because of decision paralysis. CMIE and the ministry of statistics and programme implementation-type databases have enough robustness to capture the number of stillborn, stalled or delayed projects and investments. Factoring in their multiplier effects, the cost of delay can be estimated. Surely there should be a few resident and non-resident economists willing to take up this task? What does it mean in terms of per annum growth sacrificed, if we implement only 42,000 Mw of power projects instead of the planned 78,000 Mw in the 11th Plan? What is the growth sacrificed if 10,000 kms of BOT road projects are delayed for over a year?
As if this were not enough, there is another major impact that decision paralysis has on the medium term. That is the failure to create a bank of projects for the future. If the 12th Plan does indeed propose a $1,000 billion target for infrastructure, then it means that from April 1, 2012 onwards India should be putting on the ground at least $200 billion of completed projects. Assuming, optimistically, that it is a four-year cycle to deliver a completed project, then we should have a working pipeline of $800 billon right now. Does anybody believe we have “cooked” projects worth $800 billion right now? The private sector cannot conceive and create infra projects in most cases. It is the sovereign that conceives. And in PPP cases, the private sector bids. In the few instances where the private sector displays entrepreneurial energy, like thermal power, it finds its hand tied.
In fact, if Chidambaram were to address the Fund-Bank in 2011, he may well modify his statements to say decision paralysis is possibly impacting India’s GDP by two per cent !
The author is Chairman of Feedback Infrastructure. These views are personal. vinayak.chatterjee@feedbackinfra.com