At Rs 73,075 crore, the order of capital expenditure forecast for 1997-98 for the corporate sector by RBI looks healthy, but the four per cent increase in real terms assumed does not really mean anything in terms of the scale of physical assets likely to be created, especially in the context of the substantial cost escalation that is taking place because of a vicious circle of time and cost over-runs. The RBI's department of statistical analysis should be quite familiar with ICOR, the incremental capital output ratio, a critical element in capital expenditure getting reflected in additional physical assets. Sanctions by the public term lending institutions are only one side -- often a negligible one -- of the story and the corporate sector's productive capacity must really show in output that is globally cost and quality competitive. With the protected market increasingly under severe threat, this is no longer of academic interest only.

The bare figures do not matter any more and the capital formation that CSO and RBI report as part of the national accounts statistics must be based on an ICOR that is low by international norms and is not one contrived by the Planning Commission to proclaim that the quality of the nation's development effort is internationally comparable. All along, under a protected market syndrome, the ICOR being largely notional could not have hurt the economy very much and the corporate sector could have gone on as if nothing happened. But with the emergence of WTO and along with it a regime of international free trade it won't do to assume that every head of capital expenditure incurred is on the basis of an achievable output and one consistent with the global cost and quality norms.

Obviously, we need more facts and given the indifferent disclosure standards of several corporate constituents, the Reserve Bank should do a lot more than merely collate the sanctions given by the term lending agencies. CSO's own record is inglorious to say the least and year after year the nation is treated to a lot of statistical jugglery, with the agency having no qualms about showing up the economic performance though massive additions expediently explained as residuals. RBI has to step in and in regard to the corporate sector should provide all the key information about how well or otherwise this critical segment of the economy is performing in regard to investment-output ratio. The veil has got to be broken.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.