Step up spending

01 Jun 2012 CW Staff

The events being played out in the economy are a natural consequence of the action - or rather the lack of it. The Sensex has slipped, the rupee has slipped further and business confidence is sliding down. India cannot afford to grow at less than 7 per cent.

If our planners do not provide for spending up to 9 per cent in infrastructure, not only will our progress be stymied owing to its inadequacy but even the lack of the multiplier effect will depress economic sentiment. Consumer demand has a lag effect and has already started getting hit post-policy paralysis. It’s true that demand continued to show resilience despite the scams and policy paralysis as it takes a while to cool down. But the bad news is that it takes a lot longer to get it going. The RBI may be battling inflation but it is not really responsible for generating growth and, therefore, no country hands over the reins of its governance to its central bank. However, somehow our Finance Ministry has let it have a field day. As a result, it has choked growth incessantly. Fiscal control can be achieved by fiscal measures but sentiment requires physical action.

The government’s tinkering with tax laws has cost us dearly. According to a Nomura report, multinational companies have been pulling money out of India at an accelerating rate, moving $10.7 billion out of the country in 2011, up from $7.2 billion in 2010 against just $3.1 billion in 2009.

So what happened suddenly to our ‘India story’? We called this situation upon ourselves. If one were to write a book on ‘what not to do to an economy when it is one of the fastest growing economies in the world’, one could start with all that the
government did when nothing was required to be done and did not do when it was required to do something! If scams were not enough, the media made ‘government bashing’ a TRP strategy for readership in print media while the electronic media went on to relish the results of the mayhem it caused. So while Indian businessmen remain very bearish, foreign investors wonder what the problem is with India’s business confidence. For them, even 6 per cent GDP growth is better than most other nations deprived of any growth.

In its report on the Delhi airport modernisation project, the Comptroller and Auditor General of India (CAG) claims that the government had given out prime land that would fetch Rs. 1.63 lakh crore to its private sector partner, DIAL. This scam value has been calculated on the basis of the land made available to the lessee for the airport project. The extrapolation of this opportunity, which was made available by virtue of a project that invited open bids, seems like taking governance to another extreme where every PPP project can be termed as a scam at some point in time. The CAG needs to exercise some discretion in airing its reports. If this were true, the shareholders of the GMR group company, which owns the project, should have been able to see the value in their investments go up. But the fact is that the stock is doing poorly on the stock market.
On May 11, our INFRASTRUCTURE TODAY INDIA OPPORTUNITY conference in Toronto, organised with the Canada India Business Council and ASPIRE International Group Inc, ASAPP Media’s associate firm in the US, drew a full house of delegates mostly from the financial sector looking forward to investment opportunities. They had little concern over the scams but were more keen to learn about risk, smoothness of investment transaction, regulation, government spending, and projects. India has clearly missed grabbing the opportunity at the peak of being able to draw FDI for its infrastructure spending and now it will have to work harder at drawing interest. Still, it’s better late than never. Is anyone listening?

The events being played out in the economy are a natural consequence of the action - or rather the lack of it. The Sensex has slipped, the rupee has slipped further and business confidence is sliding down. India cannot afford to grow at less than 7 per cent.If our planners do not provide for spending up to 9 per cent in infrastructure, not only will our progress be stymied owing to its inadequacy but even the lack of the multiplier effect will depress economic sentiment. Consumer demand has a lag effect and has already started getting hit post-policy paralysis. It’s true that demand continued to show resilience despite the scams and policy paralysis as it takes a while to cool down. But the bad news is that it takes a lot longer to get it going. The RBI may be battling inflation but it is not really responsible for generating growth and, therefore, no country hands over the reins of its governance to its central bank. However, somehow our Finance Ministry has let it have a field day. As a result, it has choked growth incessantly. Fiscal control can be achieved by fiscal measures but sentiment requires physical action.The government’s tinkering with tax laws has cost us dearly. According to a Nomura report, multinational companies have been pulling money out of India at an accelerating rate, moving $10.7 billion out of the country in 2011, up from $7.2 billion in 2010 against just $3.1 billion in 2009.So what happened suddenly to our ‘India story’? We called this situation upon ourselves. If one were to write a book on ‘what not to do to an economy when it is one of the fastest growing economies in the world’, one could start with all that the government did when nothing was required to be done and did not do when it was required to do something! If scams were not enough, the media made ‘government bashing’ a TRP strategy for readership in print media while the electronic media went on to relish the results of the mayhem it caused. So while Indian businessmen remain very bearish, foreign investors wonder what the problem is with India’s business confidence. For them, even 6 per cent GDP growth is better than most other nations deprived of any growth.In its report on the Delhi airport modernisation project, the Comptroller and Auditor General of India (CAG) claims that the government had given out prime land that would fetch Rs. 1.63 lakh crore to its private sector partner, DIAL. This scam value has been calculated on the basis of the land made available to the lessee for the airport project. The extrapolation of this opportunity, which was made available by virtue of a project that invited open bids, seems like taking governance to another extreme where every PPP project can be termed as a scam at some point in time. The CAG needs to exercise some discretion in airing its reports. If this were true, the shareholders of the GMR group company, which owns the project, should have been able to see the value in their investments go up. But the fact is that the stock is doing poorly on the stock market.On May 11, our INFRASTRUCTURE TODAY INDIA OPPORTUNITY conference in Toronto, organised with the Canada India Business Council and ASPIRE International Group Inc, ASAPP Media’s associate firm in the US, drew a full house of delegates mostly from the financial sector looking forward to investment opportunities. They had little concern over the scams but were more keen to learn about risk, smoothness of investment transaction, regulation, government spending, and projects. India has clearly missed grabbing the opportunity at the peak of being able to draw FDI for its infrastructure spending and now it will have to work harder at drawing interest. Still, it’s better late than never. Is anyone listening?