More public works

In the good old days governments used to heed Keynesian advice to spend their way out of an economic recession by starting civic works on a large scale. Many holes were dug and filled up but some governments did better and built roads and irrigation bunds. Today, the universal prescription for kick-starting the economy and boosting business morale is those public works programmes again but it comes this time mainly from the corporate world and under an impressive-sounding new name, the infrastructure. It may be old wine in new bottles but no better ideas are being sold. A survey of 200 of the country’s top industrial houses shows that over 90 per cent look to the government to initiate infrastructural projects in the hope of restimulating demand in the economy. At pre-budget meetings with the Union ministers, business and industry lobbies have been pressing the same point. Assocham is so keen to see capital expenditure stepped up it says further deterioration in the fiscal deficit would be tolerable. TheConfederation of Indian Industry presented more specific proposals for the government in a list of 40 moderate-sized projects for airports, ports, power, roads, mines and so on.

Union Finance Minister Yeshwant Sinha seems inclined to share this general view. So, one can expect public earth-moving equipment to begin rolling out soon. But before that actually happens, it is necessary to distinguish between hole-filling and more useful stimulus packages. Judging the scale and type of public works is not going to be easy. No one wants to see public money sunk into unfinished steel and cement piles of no use to any one. And why take for granted that it is the government’s sole responsibility to finance and build the infrastructure? In many areas, joint public-private sector projects could well be the answer. As for funding, it would be irresponsible not to make a serious attempt to contain the fiscal deficit. The lessons of fiscal indiscipline are plain to see in the 1991 crisis, the capital expenditure-cuttingremedies of subsequent years and the present economic slow-down.

In the midst of the usual pre-budget clamour for sectoral tax and tariff concessions, Sinha is right to prepare the country for a tough budget. His hands are tied. There can be no more populism. At most some modest rationalisation will be possible. What looks inescapable now is some new tax measures, austerity in government departments, cuts in low priority subsidies and PSU disinvestment. Make no mistake, this is the belt-tightening season. Sinha calls for a national consensus to make his task a little easier. But a consensus has to be built carefully. It will not come about overnight by exhortation. It would help if the government showed even-handedness in its response to demands. It cannot expect the cooperation it seeks when it is seen caving in to certain pressure groups as it did to the wheat farmers’ lobby. After that sorry spectacle, how does the government propose to deal with the trade unions, from left to right, who are opposingdisinvestment and privatisation of the insurance sector?