People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 22

May 28, 2006



Prabhat Patnaik  


THEORY anticipated this long ago. If you have an economy which is opened up to globalised financial flows, then State policy gets geared towards "retaining the confidence of investors" which means appeasing a bunch of international financiers. And this is the very anti-thesis of "planning", whose essence consists in the pursuit of economic policies and the adoption of an economic regime that fulfills certain social priorities defined by the needs of the people. To cater to the needs of the people and to cater to the caprices of international finance capital are antithetical. Hence the Indian economy's "opening up" had to entail, sooner or later, an abandonment of planning, even of the sort we have had.  


This theoretical truth is being realised now. For some time the State pretended that even though it was "opening up" the economy to free flows of commodities and finance it was as committed to "planning" as before. This pretense is now being given up. The planning commission itself is now busy announcing its self-immolation, and its reincarnation as a body to assist state governments "in capacity building" for "setting up Public-Private Partnership cells with a list of projects that are bankable and viable for PPP". In other words the planning commission will from now on help state governments to get private investment for projects that are "bankable". So said Chidambaram and Montek Singh Ahluwalia at a meeting of state chief secretaries convened for this very purpose on Saturday the 20th of May.  


The argument they presented was as simple as it was apparently irrefutable. Chidambaram reeled off figures. The Committee on Infrastructure headed by the prime minister had estimated an investment requirement of Rs 210,000 crores for highways and Rs 50,000 crores for ports by 2012, while the development of airports would require an additional Rs 40,000 crores by 2010. Resources on this scale could not come from the budget. The need was to reach out to "private savings and private funding, apart from other instruments in the market to raise funds" (The Hindu May 21, 2006). For good measure he repeated the figure that Manmohan Singh had given to assorted financiers in the US: India could absorb $150 billion of investment in infrastructure. With requirements on this scale, can any sensible person think of doing without PPP?  




The uninitiated must realise however that all this is a trick: "wowing" the audience with apparently massive figures is just a gambit. Let us take the Infrastructure Committee's figures. While the absolute amounts appear huge, when they are all added up, they come to about Rs 53,000 crores annually. Now, the Central Plan outlay on roads and highways, on ports, and on civil aviation, comes to over Rs 20,000 crores as of now. Let us add state outlay figures to this, which are quite large on road transport, and which would easily exceed Rs 10,000 crores. But let us be deliberately conservative and take merely Rs 10,000 crores as state plan outlays under these heads as of now. The additional amount required for investment in these particular elements of infrastructure, it turns out, comes to Rs 23,000 crores annually at the most, which is just about 0.7 percent of the current GDP. This is all the investment that the infrastructure sector needs according to the government's own estimates, and this is easily manageable from the government's own budgetary resources, not to mention borrowing from the capital market by the public sector itself. In other words, the financial argument for having Public-Private Partnership for investment in the infrastructure sector is sheer bunkum. And we have not even questioned the government's estimates about the needed investment! (Likewise Manmohan Singh's estimate of $150 billion was for a period covering 10 to 15 years, so that the annual investment requirements were less imposing).  


This is exactly the argument that was used some time ago to induct multinationals like Enron into the power generation sector with guaranteed rates of return in foreign exchange. Highly inflated estimates of investment requirements were produced which had little rationale; the figures were deliberately presented not on an annual basis but bunched for several years to make them appear even more fantastic. And then this was sold to the country as justification for bringing in multinationals or inducting domestic private capital into these sectors, with "appropriate" concessions, "naturally" in the nation's interest! We are back again to this old game. But precisely as the Enron example shows, such induction entails a jacking up of "user charges" which effectively prevents the poor from using these infrastructure facilities. In the present case, they would be prevented from using facilities like roads since they cannot afford it. And it is not as if investment would occur separately for providing them with alternative infrastructure facilities. They would simply be excluded from infrastructure use.  


Besides, once PPP becomes the normal way of financing infrastructure projects, then all kinds of other projects like water supply and social overheads too can be offloaded in this manner; we would in effect then have privatization of social amenities to the exclusion of the poor. This has happened in other third world countries to the detriment of the common people; India had avoided it until now, but the Manmohan Singh government is hell-bent on introducing it here as well.  




Some may feel that we are guilty of exaggeration. The argument may be put forward that if the government can offload such projects to the PPP basket, then it may be able, all the more, to concentrate on non-bankable projects which are genuinely in the interests of the poor, that the scarce budgetary resources would be released precisely for more worthwhile projects.  


This argument gives one a sense of déjà vu. Not long ago we were told that the government must get out of all kinds of areas like hotels or tourism, and concentrate only on worthwhile areas like infrastructure. We were also told that the government must sell off equity even in profit-making pulic sector enterprises, indeed even in ONGC, and that too even if this equity is cornered by a California financier called Warren Buffet, because, don't you know, it is very important for the government to have resources for the infrastructure sector. And when it comes to investing in infrastructure sector we are told that the government must get out of doing so, because, don't you know, it would have to have resources for non-bankable infrastructure projects. The story is one of a continuous government retreat from one sphere after another and a handing over of the vacated space to private, including multinational players, on the grounds that some corner of the remaining non-vacated space is even more important. Ultimately in this process no corner remains for the government not to vacate. And this is so for a very good reason, namely that every such retreat leads to a further dwindling of the government's resource base.  


Let us assume for a moment that the government is completely well-intentioned. It really intends to use the PPP arrangement for conserving resources for non-bankable projects which are meant for the poor. The catch nonetheless is that in order to induce the private players to participate in the PPP projects, the government has to make a host of concessions, not just on the specific projects themselves but even on macroeconomic policies. For example if PPP has to be generalised and MNCs have to be wooed to get into it, then stock market buoyancy has to be maintained, capital account convertibility may have to be introduced, a tax regime which metropolitan financiers find attractive would have to be introduced, guaranteed rates of return would have to be promised, "fiscal discipline" would have to be rigorously followed, and so on. All these would reduce the resources available with the government and force a further expenditure deflation upon it, which means that even its capacity to use fiscal means to finance non-bankable projects would get seriously undermined. In other words, as the government retreats further into a corner promising even greater vigour in defending the residual space, its capacity for defence also dwindles through this very process, so that this mythical defence never happens. All this moreover is assuming that the government is well-intentioned, but this, as the Enron case suggests once again, is a dubious assumption.  




The problem with PPP is not just the exclusion of the ordinary people from the use of infrastructure facilities, though the idea of two Indias, one affluent enough to afford the use of modern amenities and infrastructure and the other denied even basic amenities and infrastructure use, is repugnant enough and fraught with explosive consequences; the problem is the hegemony that it accords to private capital in general and metropolitan capital in particular in the nation's economy, and its consequences for sovereignty, for freedom from imperialism and for democracy. It represents in fact an inversion of development planning.  


An example that itself constitutes an irony would make the point clear. Ahluwalia talks of "bankable" projects. "Bankable" is what banks consider suitable. What infrastructure projects obtain investment would depend therefore upon what the banks think about them. Now, in this very country banks had been nationalised in order to make them conform to social priorities. It is not their will that was to determine where finance went, but social will, expressed, no matter in how distorted a form, through a political executive answerable to a popularly elected parliament; and banks had to jolly well conform to that will. Now we have an inversion, where the will of the banks, driven by profit considerations (even when nationalised), shall determine where finance will go, and social priorities would have to be quietly abandoned.  


This quintessentially is the demise of planning, with the planning commission becoming a mere go-between that arranges meetings between private businessmen and government agencies for striking deals. If the state governments are receptive to the idea, it is because they have already been reduced to both penury and lack of autonomy. Their penury inter alia is the result of the exorbitant interest rates charged by the centre on loans made available to them, including Plan assistance, in the period since liberalisation. Their lack of autonomy arises from the fact that major decisions like how much they can borrow and what tax rates they can charge (in the sector that constitutes their most significant revenue source) are not within their control. And most of them in any case are in thraldom to organisations like the World Bank and the ADB. Their acquiescence, born out of helplessness, in the PPP arrangement, far from legitimising PPP, is itself a symptom of the demise of planning.  


State governments have to raise their collective voice for a reversal of policies that have led to their immiserisation, even as the political struggle against the demise of planning gathers momentum.