SMART DECISION NOT SPENDING

The government has to step in and invest massively in ongoing and shovel-ready Infrastructure projects, such as the Delhi-Mumbai Industrial Corridor townships, to boost economic recovery. But there is plenty the government can do to induce growth without spending money.

One, stop patronizing power theft and offering free, unmetered supply. The power sector’s problems are less about capacity or fuel type and more about bad politics. Installed capacity is more than 370 GW but capacity utilization hovers below 50%. Blame it on distribution utilities’ failure to collect payments from consumers and pay their dues to generators.

Of the power produced, 20-40% is not paid for, depending on which state you are in. Technical loss can account for some 11%, the rest is given away or stolen, with the blessing of local politicians.

Missing Political Courage:

It is obvious that this damages the power sector, bankrupts those who set up power projects, creates bad loans on bank books, and cripples’ investments in transmission and distribution infrastructure, making the supply unstable outside big towns. What it additionally does is to abort an entirely feasible revolution in Agro-processing today.

Love for the farmer is best expressed not so much with emotional rhetoric as with reliable daytime power supply in rural areas, so that cold storages and plants that quick-freeze, desiccate, nitrogen-pack, purée or preserve farm produce can run, and allow farmers to produce to their full capacity and earn better incomes, both by avoiding wastage and by realizing a better price.

It takes political courage to ask people to pay for the power they consume. That courage is missing from the discourse.

Two, enforce, instead of abandoning, the rule to beneficiate coal before transporting it. Indian coal is 40% stuff that does not burn and turns into fly ash at power plants. Reducing the quantity of the non-combustible stuff is called beneficiation.

Hauling coal accounts for about 40% of Indian Railways’ revenues and at least 50% of its energy cost. When the coal is not beneficiated, 16% of Railway revenue and 20% of its energy expenditure is accounted for by the wholly wasteful activity of carrying rock, shale, and dirt across the land. If coal is beneficiated to at least 20% ash content before transport, this national shame could be cut by half.

Suppose the government enforced its rule on beneficiation: fresh investment would take place in cleaning up coal, boost many related sectors, and free up rail rakes and rail tracks, besides. Dry beneficiation technologies that do not poison a lot of freshwaters are available today. And, yet, the government has actually abandoned the stipulation on cleaning up coal before transport.

Three, concede the demand of the aluminum industry to enforce quality standards on imported scrap and raise import tariffs on it. But also slash the import duty on aluminum. Align both at 5%. This would make aluminum cheaper for small industry, create a domestic scrap collecting, sorting, and processing industry, and reduce the presence of toxic and radioactive scrap in cooking vessels used by the poor and in electric cables and wires, making for better conductivity.

Align import duties for scrap and virgin metal for all metals, to promote domestic recycling.

Give Equity, Not Debt

Four, ask the National Investment and Infrastructure Fund (NIIF) to buy equity stakes in large companies that struggle to service their debt. Companies are not in a position to service debt. Give them capital as equity, which can be recouped at a profit after these turn around (see more on this in the article below by K S Mehta).

Five, ask National Housing Bank (NHB) to buy equity stakes, directly or through a special purpose vehicle, in real estate projects that are stuck after completing 30-70% of the work and to buy out projects where construction is less than 30% complete. These projects will not get debt and will stay permanently stalled, locking up some Rs 7 lakh crore of resources. Infuse equity at realistic valuations, complete them, and realize the fruits of real estate’s sizeable forward and backward linkages.

Let the real estate finance facility fund the projects that are stalled only for last-mile funding, with support from banks.

Six, change the remuneration structure of public sector bankers, reward them handsomely for good banking decisions with stock options to be exercised over a staggered period, subject to clawback. Don’t just penalize them for mistakes.

Seven, get all government departments, central and state public enterprises and companies with a turnover above Rs 250 crore (larger than medium enterprises), to join Trade Receivables Discounting System (TReDS). This is an online factoring platform that will unblock trade credit for small businesses at interest rates that reflect the credibility of large enterprises. An invoice raised by a small supplier would be authenticated by the buyer, and a financier would take over the receivable from the supplier, giving it cash upfront, less a discount. This would end payment delays for small suppliers.

Without adding to the fiscal deficit, these measures would buoy the economy.