To average an annual GDP growth of 8% in the recently finalised Twelfth Five Year Plan, the Indian economy would need to grow by 9 -10% per annum for the last three fiscal years of the Plan. The current year growth is estimated to be about 5.5% while given the global and domestic scenarios, the improvement expected next year at best is 1%.
No doubt in the past, we have attained such pace of economic progress. But the base was much smaller. Consequently, the effort required was less. Also demand for keeping the growth-process inclusive was not as strident as at present. More importantly, the world economy between 2001 and 2007 was in the midst of an economic boom, a kind that cannot be foreseen again for a long time. The steady integration of the Indian economy into the global, since then, has made us more vulnerable and dependent upon the international forces at play.
Presuming that the world economy does gradually come out of the morass it has now been in for almost five years, and governance in India improves significantly, there are a host of issues that need to be attended to urgently. Without that, there is little possibility of achieving the envisaged ambitious growth rates. It has to also be recognised that a consistently high-growth warrants a stable political environment, something that has been uncertain for a while.
The five most important are stepping up electricity availability, introducing a country wide system of Goods and Service Tax to replace the highly inefficient current indirect taxation regime in states, easing the provision of land for developmental activities, lowering interest rates to revive investments and making states a more equal partner in the growth process. Undoubtedly to implement any of these priortised items, simultaneous action on many other fronts is also required, e.g., to appreciably reduce interest rates, inflation has to be brought down. To succeed in that requires reining in the fiscal deficit and reducing the current account deficit in external trade, both of which in turn are related to the savings-investment gap. Equally important in the exercise is the removal of supply-side constraints for essential commodities.
A non-negotiable requirement for the high growth objective is the provision of an adequate quantity and quality of electrical energy. For far too long, progress to our full potential has been held back for want of power. It has been estimated that GDP growth not realised on account of power shortage could be 1.5%. In none of the last seven Five Year Plans, have we ever added the envisaged new capacity for generation. In the new Plan, capacity-addition of one lakh megawatts has been estimated, i.e., 82% more than in the XI Plan and about 55% of the capacity created in the last sixty years. Though adequate resource allocation has been made for it (in fact over a third of the R51 lakh crore expenditure on infrastructure is earmarked for electricity) there are issues which have in the past prevented higher investments in this lucrative sector. Land availability, environmental clearances, transmission constraints, inefficient grid management, regulatory uncertainty and poor financial capability of state-owned utilities are all capable of being fixed as none of these is a new issue and pros and cons of possible solutions have been debated threadbare. Persistent efforts to resolve each of these at the highest political and governmental levels cannot be postponed any longer.
Besides deficit in capacity?accretion, plant utilisation or plant load factor as it is called in case of thermal power, has invariably remained low. Inadequate fuel availability is the primary cause. The current situation in this regard is precarious. There is an admitted shortage of 100 mt of coal and with coal continuing to remain our primary source of energy, the deficit is bound to leapfrog. Authorities, both at the Centre and in states, must gear themselves to arrange such quantum of this fossil fuel through imports regardless of our being a country with third highest coal reserves and Coal India Ltd being the world?s largest coal mining outfit.
There is no point tom-toming about size when Coal India?s mine -output has remained stagnant for the last three years despite the market for its produce increasing consistently by 7-8% annually and there being no paucity of assets with it to mine. All out efforts to increase its production by at least 5% per annum is a must. Simultaneously, to further augment extraction, Union Government must move to amend the Coal Nationalisation Act, 1973, to make all further coal block allocations only through a process of competitive bidding. Let the monopolist Coal India compete with private bidders at least for all future assets, much the way ONGC and other government companies have to ever since the New Exploration Licensing Policy was introduced for oil and gas fields in 1990s.
Also the capability of Indian Railways to carry coal must be augmented by insisting upon cash-rich Coal India to invest in new rail lines and rolling stock. If Railways were to explicitly indicate its willingness to carry only washed coal after an agreed time-period, Coal India and other mining companies would necessarily have to invest in or arrange for coal-beneficiation at mine-mouths. Huge quantities of non-combustible material present in our thermal coal need not then be carried by the highly stressed rail system.
Alongside, the availability of oil and gas for power generation has to be vastly improved. With domestic gas production remaining awfully below expectations, this necessarily entails more imports. Whether imported coal and gas for power generation should be subsidised till global crude prices fall substantially, courtesy huge shale gas discoveries in parts of North America and Russia, or electricity be sold for specified uses below cost must also be weighed in its entirety. Periodically writing off debts of state owned utilities is tantamount to subsidising the end user of electricity. Expensive power has had a considerable impact on inflation and consequently on the pace of economic growth. High fuel prices are currently preventing utilities, both state owned and private, from fully lifting their indented quantities of more expensive imported coal and LNG. Instead many of them are preferring to cut back generation and reduce their losses.
Refurbishing and expanding the telecom network during the last fifteen years or so has served the country well with several economic and social benefits accruing. Universal provision of affordable electricity, in fact, has an even greater potential to bring about a vast improvement in living standards and lifestyles of all our citizens and must be made the highest priority in the recently embarked exercise.
The author is a former secretary in the Union ministry of commerce and industry is an ex CMD of NHPC and REC
