Home / Opinion / Views /  Growth calls for an emphasis on our connectivity infrastructure

The second advance estimate (SAE) of gross domestic product (GDP) for the current year 2020-21 has not given joy, even though India’s third-quarter growth rate is in positive territory at 0.4%, after two successive quarters of negative growth. There were higher expectations from the “festive quarter". The growth rate for the whole year has been revised down a touch, from -7.7% in the first advance estimate to -8%. There was no base effect, since the GDP growth rate for 2019-20 was also revised down, from 4.2% to 4.0%.

In these turbulent times, when taxes and subsidies are not steady, it is better to look at gross value added (GVA), which yields the growth rate shorn of the net indirect tax margin. GVA has been revised up for 2020-21, to -6.5% from -7.2% earlier, and there is no base effect there either, since the 2019-20 GVA growth rate has been revised up too. Sectors with positive growth rates (agriculture, utilities) have been revised down a little in the SAE, and those with negative growth have been revised up, with two exceptions (financial sector, public administration). A scatter plot shows more inter- sectoral convergence in growth rates than in the previous estimate, in and of itself cause for greater confidence in the figures, and gives hope that the recovery may be less K-shaped than feared.

On whether the Union budget did enough for growth and jobs, I have written earlier. There is only so much additional public expenditure possible, given debt constraints. The issue is how best to structure public expenditure such that movement of goods and people is enabled. There is a large base of infrastructure lying in a dysfunctional state for lack of maintenance.

Jobs have to be generated in a spatially dispersed way for people not to have to traverse prohibitive distances. In this connection, all praise is due to the Fifteenth Finance Commission (15th FC) for structuring its total grant provision of 10.33 trillion (over five years), such that the largest grant of 4.36 trillion goes to local bodies—urban municipalities and rural panchayats. Out of that, a health component of 0.7 trillion is earmarked for strengthening of physical infrastructure and diagnostic facilities of primary health facilities. Aside from bringing health services within the reach of our dispersed population, there will be spatially-spread job generation at the physical construction stage, and jobs for medical technicians and primary health care providers. Obstacles remain. The medicines needed will come from an independent funding stream, the National Health Mission, and the funding streams will have to converge meaningfully at the point of delivery. Hopefully, that will happen if, as the 15th FC recommends, supervision is transferred to local governments, as the state of Kerala as done.

The local grant has been fully accepted in the action taken report (ATR) on the 15th FC report. But the sectoral and state-specific grants recommended have not been accepted. These grants account for a mere 3.4% of the total provision to states (including tax shares as projected), but the action runs against the convention of accepting all quantified transfers recommended by finance commissions. The ATR promises that due consideration will be paid to the sectoral concerns of the 15th FC through centrally sponsored schemes (CSS), which are non-statutory, and therefore bedevilled by severe uncertainty at the recipient end on the timing of flows (I have written on this elsewhere).

One of the grants which stand rejected is for maintenance of roads built under the Pradhan Mantri Gram Sadak Yojana (PMGSY). This centrally-funded scheme, started in the year 2000, built all-weather road connectivity to previously unconnected villages. Without functional roads, produce from these smaller settlements was held hostage to residents of the larger settlements which did have connectivity. The Centre guarantees maintenance of PMGSY for the first five years, after which state governments have to take over. Recognizing this, the Thirteenth Finance Commission provided a maintenance grant to states for PMGSY roads, but the Fourteenth did not, on the grounds that it had substantially increased the tax share of states. However, any state government with an eye on the polls will see its way to votes through new infrastructure, rather than through maintenance of a previously built road. Maintenance of infrastructure is the kind of invisible grunt work that loses out in the political sweepstakes to the new and shiny.

PMGSY roads bear heavy truck traffic, unlike the lighter vehicles that ply inner city roads. Unless trucks bearing goods to and from all village habitations are enabled, we will not get the spatially-spread demand and growth that we are looking for. Corporate India has a stake in functional PMGSY roads, but Schedule VII of the Corporate Social Responsibility (CSR) Act does not have a provision for maintenance of village roads.

Growth and employment will happen if public expenditure is structured to get more mileage out of infrastructure built in the past. The Finance Minister in her budget speech announced that the 4 % limit on state borrowing will have a carve-out for capital expenditure. If the rules are worded to include maintenance and restoration of pre-existing infrastructure, that will get us more growth mileage for any given unit of public expenditure.

Indira Rajaraman is an economist

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