The recent SE Asian currency has been indeed very formidable. The meltdown process is still continuing and it is not known when it will be finally over. It is pertinent to examine the circumstances of its occurrence and impact on Indian economy, particularly vis a vis Power project financing. It is possible that the large-scale financing in India by foreign companies of these power projects in India may very significantly affect India's balance of payments in the future leading to a crisis, similar to one currently taking place in the SE Asian countries. At present Indian rupee has moved downward by only 7.31 per cent, while other currencies have tumbled considerably.The meltdown process is still continuing and it is not known when it will be finally over.
Although, so far, Indian rupee has moved downwards by only 7.31 per cent, it is pertinent to examine its impact on the Indian economy, particularly vis-a-vis power project financing. It is possible that the large amounts involved in Indian powerfinancing may significantly affect India's balance of payments leading to a crisis similar in magnitude as in south Asian currencies. One of the reasons for the currency holocaust in SE Asian countries is that the size of currency of these countries is very small as compared to that of US dollars. The amount of institutional funds invested by asset management companies is enormous. When these are made available to small countries such as Thailand as short-term loans, the repayment of these loans on time becomes almost impossible. This is how George Soros using his asset management dollar funds made his contribution to the woes of south Asian currency crisis. US dollar funds are enormous in comparison to those held in national currency of any country.
The short-term debts in foreign exchange were the main debts while the internal resources were tied up in long term investments, the debt loans were primarily made in US dollars through US companies who caused the havoc and the redeeming factor was IMF loansgiven over to the defaulting countries.
Now let us examine the financial position of the Indian economy vis-a-vis the power projects being financed.
First of all we must feel grateful to Dr Rangarajan, the former governor of Reserve Bank of India for having exercised his power to finishing off most of the short-term forex debt and replacing that with long-term one, a year ago. This saved India from the panic run on US dollar with India.
Second, we must be thankful to the present governor Dr Jalan for having raised two percentage point bank rate and thus aborting the likely fall of rupee in terms of dollar value. Had he not done so timely, there would have been no limit of depreciation of the value of rupee in terms of dollar. A sound monetary policy can avert the likes of SE Asian currency crisis.
Having looked into the monetary policy of the Indian economy, let us now analyse the implications of the very high forex expenditure and loans required for power projects structure. The aggregate paymentsscheduled towards principal and interest and the currency of payment vis-a-vis the national budget ought to be worked out carefully in advance of the commencement of the projects. Otherwise India may experience a crisis similar or worse than any other South East Asian.
Under the garb of globalisation for India, the policy heralded under much fanfare by ex-finance minister, Manmohan Singh in 1991 has emerged the entry of foreign companies in the infrastructure/power sector. The foreign companies have grabbed the opportunity of minting money in India in tonnes of gold. Many of these companies have themselves acted to promote, co-promote, collaborate, construct or give technical expertise. But first, the CEA ex-chairman SN Roy has questioned the wisdom of going after the power projects. In an article `What ails the power sector' published in `India Power', Vol.VII No 11, Jan 1998, he writes "There is a general feeling that the country suffers from serious power shortage. This is, however, not correct as thebase load demand at present is only about 35,000 mw as against an installed capacity (thermal) of 64,000 mw. The energy shortages do take place only during the peak hours whereas the country is surplus during other hours. In fact, we are backing down 10/15 billion unit of power during the night. The real element is thus not energy shortage but `peaking power'.
Be that as it may, the foreign companies have used persuasive power of their government and their money resources to bend the government. of India to accept the promotion of power projects as a cogent tool in India's development. The politicians and the bureaucrats both succumbed to the temptations and granted the licenses.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
