- Clearance: an instrument to exercise discretion
- Consensus: an excuse to deny and delay
- Committee: group of persons appointed to prolong
- Consider: to think about political impact
- Debate: calculate electoral consequences
- Decision: an involuntary act propelled by circumstance
- Indecision: a deliberate act propelled by self-interest
- Pending: remain undecided until it is expedient
- Permission: a speed-breaker installed for rent collection
- Stall: to bring to a standstill all progress for political ends
In a few weeks, India will confirm its worst fears as the 2012-13 GDP numbers—5 per cent or sub 5 per cent —tumble out to record the lowest growth in a decade. The shamans in the government play two songs in a loop in every debate on the economy—that India is growing faster than other major economies and that it will grow at 6.1 per cent t0 6.7 per cent next year. Some even believe that the economy has bottomed out. Perhaps! The IMF on Wednesday, though, limited the hope to a forecast of 5.7 per cent GDP growth.
The unanswered question is who let the bears out—who dragged the economy into sub-par performance? The economic survey quantified a general suspicion when it pointed out that investments worth `7 lakh crore and more have been stalled. To get a perspective, consider this: `7 lakh crore is more than total government expenditure under the capital account in four years and is three times what it will invest under capital account this year. And this is an economy fuelled by private investment and private consumption.
Given the strong correlation between investment and GDP growth, the stalled investments represent lost growth and denial of jobs to millions. While computation of the impact of stalled projects on GDP growth is complex, a vanilla calculation of loss is possible. The economic survey states that between 2004 and 2012, investment ratio or gross capital formation was 34.5 per cent. Assuming an average GDP growth of 8 per cent for the period, you get an incremental capital output ratio of 4-plus. Now juxtapose this against the quantum of pending investments. Even if we spread them across two years, that would be `3.5 lakh crore worth investments precluded. For ease of calculation, assume this to be 3 per cent of GDP. The loss of growth is at least 0.75 per cent each year for the two-year period of policy paralysis.
In fact, the loss to GDP growth could be much more. The sectors where the investments have been stalled deliver a force multiplier for growth. The six sectors which account for 80 per cent of the stalled projects are: electricity, roads, telecommunication services, real estate, mining and steel. The multi-billion-dollar Posco investment proposal is now a monumental testimony to the sloth in the system. The Korean company came to India in 2005 and was to kick off production in 2011, but in 2013 they are still awaiting clearances.
The pending proposals are all locked in permission raj—land acquisition, regulatory tussles, mining mess and environmental clearances. The Land Acquisition Bill must be the most discussed and debated legislation ever in independent India. The Bill has seen three versions, two parliamentary standing committees and four GoMs. The other roadblock is the environment ministry. It informed Parliament that there are 396 proposals pending with the ministry for clearances, including 108 industrial projects, 146 mines and 111 infrastructure projects. It is also yet to decide on 409 proposals pending with it for forest clearances, including 92 for roads.
The fundamental mystery is why proposals are pending. Proposals would either be valid or invalid, legit or not legit. So why aren’t proposals disposed? The phrase “pending” is widely interpreted as an instrument for negotiation of rent. For long, the Congress got away blaming its allies. It is a lie that has lived too long. The major roadblocks to investment and growth are now located in ministries where Congressmen are in-charge.
Stalled investments represent not just loss of growth but engender job destruction. To start with, the UPA government has a poor record in employment generation. Indira Rajaraman, economist and former member of the Finance Commission, citing Planning Commission estimates, points that employment elasticity which was 0.44 between 1999-2000 and 2004-05 dropped to 0.01 between 2004-05 and 2009-10. Add to this, the consequence of slow growth. The back of the envelope estimate is that an 8 per cent GDP growth delivers 12 million jobs. The impact of slowdown may be difficult to quantify but is all too obvious.
In its two terms in office, the Manmohan Singh regime represents the derailment of the reforms process. That investors have to queue up at Central ministries two decades after the 1991 reforms is a testimony to the magnitude of discretion raj. Unsurprisingly, India ranks at the bottom of the table in World Bank rankings for clearances. This regime has patented the art of institutionalising credit—for the party and the government—and nationalising the failures as challenges in a democracy.
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