March 1: The Ninth Plan Document warns of imbalanced private sector investments over the next five years. The Planning Commission is worried that while the private sector will over invest in certain areas, investment in many other areas will suffer a shortfall. In addition to such ``mismatches,'' aggregate private sector investment is feared to reach a grossly higher level than desired. This, the Commission feels, must be reined in by deliberate policy action.
Civil aviation and all other surface transport sectors, except for railways will attract a significantly Rs 53,000 crore than necessary, according to the Plan document. Similarly real estate will attract an unnecessary Rs 20,000 crore.
On the other hand, fishing and manufacturing will experience shortfalls.
The latter will require extra funds worth Rs 67,000 crore. The power sector, for example, will face a financing gap, unless corrected, of a whopping Rs 176,000 crore.
Significantly, the Planning Commission anticipates these mis-matches butit is a moot point whether it can rectify them in time.
The instrument available is institutional finance -- by tinkering around with the credit system to control the flow of funds into specific sectors. This can be done by adjusting interest rates to deflect investment in the desired areas or by raising quantitative barriers for sectoral allocations.
But in today's liberalised environment and in a period when the financial sector is undergoing reforms, whether credit flows can be controlled in a grand orchestrated manner under diktat from policy makers will remain a moot point.
The reason why these ``mismatches'' occur is because of the limited role that can be played by the public sector in the Indian economy today. Public sector investment will make up about a third of the total investment of Rs 2205 thousand crore over the plan period. Given the limited public sector outlay.
Yogana Bhavan has little leeway in directing resources sectorwise to make up for the gaps and the surpluses that are turnedup in the complex input-out model.
Sectoral investment profile of the Ninth Plan is based on a combination of estimates of likely private investment, targetted public investments and a subjective assessment of residual investment gaps filled by either private or public sector.
The exact balance is always elusive and this is one of the primary drawbacks of centralised planning.
Projections made by the Planning Commission show that if real credit to the private sector is allowed to grow at the trend rate and if public investments are as per the Plan, there may be excessive pressure on the credit front. In such a situation, in order to maintain the projected macro parameters of the Plan, public investment would have to be less by 1.2 percentage points of the GDP from the Plan figures in order to accomodate the higehr private investments.
Although the possibility appears attractive from the point of view of its implications for the government's fiscal deficit as compared to the Plan, there are risksinvolved as well.
For one, there is apparently no assurance that projected private investment will actually materialise due to negative effects of existing infrastructural bottlenecks that has not been adequately captured in the Planning Commission's demand function.
For another, even if private investment demand does grow at the requisite rate, atleast a part of the reduction in public investment will inevitably fall on economic infrastructure. This may jeopardise future growth prospects.
Deliberate and targetted credit control is one of the options suggested by the Plan document. The alternative is to go for disinvestment of public sector undertakings and encourage formation of joint ventures or other forms of public-private partnership.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
