Fiscal Deficit, PPP, tightening of belts

Montek Singh our man, is recently honoured in LSE and the lecture he gave was excellent. India will concentrate more on domestic demand growth rather than depend on export promotion. If all outside countries are poor, and cannot afford, then what is the point in expecting export oriented growth?


PPP models will have to be reviewed too for the excessive capital costs wantonly built in, expecting lots of aid money and also financed by the government through increased fiscal deficit. The real capital cost is getting boosted by two to three times to take care of interests of political, bureaucratic and business players serving the development of infrastructure in the nation. The simplest example is to compare the figures cost of Delhi Metro itself--our show piece. In Goa, at a total cost of Rs 34 cr per r. km( double line) elevated metro for Standard and broad gauge , with very deep pile foundations, all pre-stressed structure, was constructed which included station, air conditioning , rolling stock -- all done to IRS and international codes, for axle loads of 14 t. This figure was verified by auditors and CAG. ( Rs 55 cr per 1.6 km). That was in 2004. In 2002 DMRC was constructing elevated metro at Rs 120 to 150 cr per km. Even if you consider import costs and very large station buildings needed there, still it seems two times the actual cost is what is being quoted in our country. Same must be about our highway projects. One must admit Shri Sreedharan has spotless personal integrity record but still this happened because of inevitable political ruling class pressures, whatever hue it belonged to, most probably in the interest of project execution. Same must be the case for the airport PPP projects too. A bloated capital cost and higher financing costs, will permit the operator some advantages, but he shares the same with costs for facilitation.

Virtually fiscal deficit funds this extra cost of the projects. The pressure on the government to meet the infrastructure deficit is palpable and the temptation of the policy makers to tap the private players to become partners in the PPP game or structure government funded PSU to practically play the same role( like DMRC and other similarly structured state PSUs) , becoming active partners in manipulating the capital costs. The money involved is of very huge order. Talk in terms of 1% to 2% increase in fiscal deficit in GDP terms means plenty of extra money for all concerned.

When it comes to tightening belts, generally working class and common people are asked to accept delayed bonuses or lay offs or bear increased taxes and higher prices.


May be it is time to have a transparent regulatory cost analysis and audit body, to scientifically evaluate the real costs of delivery of infrastructure. But this kind of honest approach is contingent on rulers tightening own belts. But will they do it? May be they will, if they seethe danger of their accumulated wealth lose in value severely because of failure to rein in fiscal deficit in near future.


Lessons from current G20 meet shall be learnt.



South Korea (Reuters) - Finance ministers can usually be relied upon to put the best spin on whatever is happening to the global economy.

Not at this weekend's Group of 20 meeting in Busan.


"Those countries with serious fiscal challenges need to accelerate the pace of consolidation," read the key line in the communique.

CHANGING THEIR TUNE

Reinforcing the impression of a group on the back foot, ministers abandoned the idea of a universal levy on banks to pay for future bailouts after divisions proved irreconcilable.

And bank lobbying appeared to pay off as several ministers signaled that a lengthy phase-in for new capital rules, aimed at reducing the risk of a re-run of the 2007/08 global financial crisis, was now inevitable.

To be sure, the G20 said public finances had to be brought under control in a way

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