People's Democracy

Editorial

SPV for Greater Private Profits

REPORTS in the national media revealed that the prime minister and his office has proposed the setting up of a special purpose vehicle (SPV) for accelerating investments in the infrastructure, mineral resources and oil and natural gas exploration sectors.  Such a proposal has apparently come because of the PM’s worries over the declining growth rate and a negative perception of India amongst the intelligentsia and industry.  The last point should be read as a negative perception of India amongst the international finance capital (IFC). The real worry of the prime minister appears to be this factor which is leading to an outflow of foreign institutional investments which, in turn, is putting pressures for the fast declining value of the rupee. 

As we said in these columns (May 6, 2012), the UPA-2 government, carrying forward its neo-liberal economic reform trajectory, is eagerly proceeding to create newer and newer avenues for profit maximisation.  This, it hopes, will attract greater foreign investment which, in turn, will propel the growth rate.  The public-private-partnership (PPP) route is being aggressively pursued by the Planning Commission and the government in order to further the process of creating newer avenues for profit maximisation. 

PPP represents the inversion of development planning  and the abandonment of  the government’s capacity to exercise the political will and thus, the sovereignty of the people.  By all means, attract  private money for public sector projects but do not promote private profit making with public money. The Planning Commission cannot be allowed to plan the demise of planning in India. 

This proposal to set-up an SPV furthers this process of private profit maximisation. The SPV has been justified in an internal note, reported in the media, thus: “In the context of the growth rate of the Indian economy falling below 7 per cent in 2011-12 and the large supply constraints that are appearing on many fronts, there is an urgent need to boost the investment rate, which would translate into both higher output and better growth rate.  This is being articulated by economists, industry groups and the media.  While issues relating to availability of funds for investments need to be tackled, there is also a need to address some of the concerns relating to the actual grounding of investments into concrete projects.”

Pointing out to the fact that acceleration of private investments are discouraged by the large number of clearances – at least 58 – from various departments and ministries in the centre/state/local levels for setting up a power project, the PMO is proposing this SPV.  Thus, the SPV will sponsor a project and be responsible for securing all clearances before the project is put up for bidding.  The SPV will be  responsible for identifying projects and acquiring the land, finalising the concept, design and securing all the required clearances and then put them up for auction to be taken over by private corporates.  In all probability, the SPV will also organise the availability of cheap finances for the project. 

In other words, the SPV, at public expense, will create readymade projects in the entire infrastructure sector for the private corporates to takeover and reap profits.  The internal note of the PMO says: “The SPV approach would be a major change in the public systems’ mindset, moving the responsibility of obtaining clearances from the private parties to the government. It would influence investor sentiment in a positive way.” 

The SPV is, thus, a higher stage in the process of private profit maximisation than the PPP.  Promoting PPP is the classic argument of those, like IFC, seeking vacation of space by the government for private profit making.  The government, we are told, needs to move out of areas like hotels etc (even while making profits) and concentrate on education and health. Then we are told since adequate resources are not available, both education and health need to be privatised.  The government must concentrate on sanitation and water supply.  And, then, we are now told, that in this area as well, PPPs with user charges must be  brought in.  And so goes on the story where the government of the day has no space left to pursue socially required projects or even express the popular will of the people. 

There is, however, a fundamental flaw in the PMO’s diagnosis of the declining growth rate in India.  This flaw hinges on the fact that it is the slow pace of investment that is the cause for the lower growth rate.  Hence, the entire pre-occupation is on making available capital for the private sector on both easier and cheaper terms.  Additionally, through the PPP and the SPV routes, the government hopes to attract larger amounts of private investments even if it were at public cost. 

The basic problem that needs to be tackled to put the Indian economy on a sustainable high growth rate path is to reverse the current slackening of domestic demand.  Unless this is done, no amount of increases in investments will lead to a higher growth rate because what is produced by these investments need to be sold in the market. This requires adequate purchasing power in the hands of the people.  It is precisely this purchasing power that is constantly being eroded by the relentless rise in the prices of all essential commodities.  Further, recent studies have shown on the basis of the latest data on household expenditures released by the National Sample Survey  that in all states of India, the number of people who fall below even the abysmally low definition of poverty by the Planning Commission, is over 60 per cent.  This is close to the late Arjun Sengupta’s report which estimated that nearly 77 per cent or over 80 crores of our people survive on less than Rs 20 a day. 

Under these conditions, it is the domestic demand that needs to be urgently raised if both our growth rate and the livelihood conditions of our people are to significantly improve.  This, in turn, requires greater public investments to build our much-needed infrastructure which, at the same time, would also significantly enlarge employment and increase the purchasing power of our people. 

Instead of doing this, this UPA-2 government, pursuing its neo-liberal reforms agenda, is only creating newer and newer avenues for private profit maximisation seeking to increase the investment levels. Unless this approach is abandoned and huge public investments are injected, neither will our growth rate improve nor the livelihood conditions of the vast majority of our people.

As we had repeatedly argued, there is no dearth of resources in the country for higher levels of public investment.  Currently, these resources are either looted through mega corruption or are handed over to the private corporate sector and Shining India’s rich through massive tax concessions.  If these are plugged and reversed, there is no shortage of resources. 

If the PMO is actually worried over the declining growth rate, then it must abandon this neo-liberal trajectory and instead sharply increase public investments. This is the only way that our economy can grow accompanied by a substantial improvement of people’s livelihood. 

Ancient wisdom that filters down often helps in understanding contemporary realities.  In an ancient Libyan fable, it is told that the eagle when struck by a dart said upon seeing the fashion of the shaft, “not by others hands but by our own feathers, we are now smitten!”

Unlike the Eagle in the Libyan fable, the Indian people cannot allow themselves to be thus smitten by our ruling classes.  Popular struggles must be strengthened to pressurise the UPA-2 government to reverse its economic reforms trajectory. 

(May 16, 2012)