“Rs 80000 Cr cash as transfer payment will (make the economy) suffer from huge, unmanageable, imbalance … create a bizarre kind of situation to handle. It will get into hyper-inflation.”

Defending the Rs 80K package that Prime Minister Narendra Modi announced in Srinagar, Finance Minister Dr Haseeb Drabu explains how connectivity replaced the energy sector. In his first detailed interview, he explains the systems being evolved to implement the new projects and the changes being affected to help the state retain the most of the benefits the investment will trigger in next five years

Kashmir Life (KL): You recently negotiated a package with Delhi and you had certain issues with it. Earlier also, you negotiated a package with Manmohan Singh Government and you were dissatisfied. What is this pattern all about?

Haseeb Drabu (HD): In the Prime Minister’s Reconstruction Program (PMRP), the idea was quite different. That time, the state government took the initiative saying we are getting central flows in various forms and we want to push a developmental thrust. So we drafted a plan in the state government and sent a proposal in a booklet form for about Rs 6000 crores. It was discussed with PM’s Office and the Finance Minister in advance; a broad agreement was arrived at for the package.

It was not a comprehensive program. It was sort of a Post Conflict Reconstruction Program. When the PM came to announce it, I was there in the audience.  Sanjay Baru was his advisor and I heard him saying that the package was for Rs 24000 crore. So I thought a mistake had been made.  What the central government had actually done was that they had included Rs 18,000 crore viability gap funding for NHPC projects, which was a central sector spending, into the package and made up the total figure to Rs 24000 crore. So, I was dissatisfied on the account that there was no need to do that because Rs 6000 Crore was really a good, comprehensive program for fully building some of the infrastructure.

The current package is a vastly different kind of a package. It was designed differently. First of all, its origin was very contentious. The previous government had submitted a plan of Rs 44000 crore. For whatever it was, that became a certain benchmark.

Though, the fact remains that Rs 44000 crore plan was reassessed by World Bank and it came up with a figure of Rs 21000 crore . That report was further reassessed by NITI Aayog and it gave a number Rs 11000 crore only. Yet the number submitted was Rs 44000 Crore, so at the back of our mind was a package that would have a certain size.

Suppose we had got Rs 30000 crore or Rs 40000 crore, it would have been seen as a failure. I am talking to you honestly as how public perception moves.

So our first goal was to do a package bigger than Rs 44000 crore and to be able to do it ourselves.

Our second goal was to ensure that it is in areas and projects that are executable over the next two to three years and where we have the capability to spend. Also, that it should have a component of relief, rehabilitation and reconstruction. So it was a much larger plan.

So when it was designed it was seen, right from the word go, as a comprehensive initiative not just driven by relief. We always thought that cash transfers do not help the overall economy.

So it was more seen as a plan for post flood infrastructure rebuilding. It was also designed keeping into consideration what I call the ‘catch up’ plan – the opportunity for rebuilding better what had been lost in the past twenty five years.

So while we were planning the package, we arrived somewhere at Rs 150000 crores. Then we looked at it from the financing level and the number got reduced to Rs 108000 crores. And then somewhere once we tied up, it opened up three funding processes: what can be funded within the budget – existing union budget; what can be funded additionally to existing budget and what can be view for the next budget. So, we looked at all these and roughly arrived at a figure of Rs 90,000 crore. Then it went back and forth for almost eight months. We had to coordinate with 27 ministries. And finally, we landed at a figure of Rs 80,000 crore.

This was agreed upon and remained so even a day or two days before the package was formally announced.

When the PM announced it, my discomfort came only on one account. A large amount of almost Rs 30,000 crore had been originally kept for power houses, because the whole idea was to build sustainability in the economy. When that didn’t happen the same way, I expressed a certain disappointment. I don’t understand why this was done and it still is a sort for mystery for me. Because, once we discuss a sign-off, then things are not changed unilaterally. But that is how I think the union bureaucracy works. They needed to probably make some changes at some stage. Though it had gone through various processes, various people in the PMO, Finance Ministry and others, yet that change had been made.

So my reservation really, in PMRP, was that adding up Rs 18000 crore to the original package of Rs 6000 crore was not the right thing to do. In today’s package, the size has been kept intact, but the composition has been changed from power to connectivity. Though, I have said that connectivity is a great thing but for a long time sustainable, fiscal and macro-economic development the funding for power component was required.

It doesn’t, however, mean that we can’t get that money; we will surely try and get that as well. But my unhappiness with this thing was purely compositional: that we had decided on power and the same was taken out.

KL: But money infusion helps economies. In PMRP you did many things like Baglihar..

HD: Absolutely, you see one of the things is that when normal funding came, it used to come under Non-Plan account. There was very little ‘projectisation’ of that. And, the money would get lost in the system.

The great idea about these packages – I call them developmental plans – is that every element is ‘projectised’. So, we know every project. For instance, we did ADB (Asian Development Bank) work; we brought only Rs 4000 crore from ADB yet the roads are known as ADB roads because the quality is very good.

Once you have projectised funding through these developmental plans over and above the state plan, it always works better, so the Rs 6000 crore made a huge impact on the state economy at that point of time.

And I see no reason why it should not happen again and that too on a much larger scale. These Rs 80000 crores would be transformative for state of J&K in terms of shifting the entire developmental paradigm to the next level.

 

KL: How will you manage the public criticism on the restoration and rehabilitation component of the package with reference to September 2014 floods?

HD: There are five elements in this package – Relief and Disaster Management are directly related to the flood.

Rest is all linked to rehabilitation through a different route. If you want to push Rs 80000 crore into the market as cash, it will destroy the economy of J&K. Let us not be under any such illusion.

For example, a doctor will tell you that if you put ten litres of glucose in to a human body at a time, the person will probably die. Similarly, if you put Rs 80000 crore cash and give it to people as transfer payment, this economy will suffer from huge imbalance. It will be unmanageable. You will not create any capacity yet you will have the purchasing power, you will have a completely bizarre kind of situation to handle.  It will get in to what is called as hyper-inflation because if you don’t create capacities and yet give purchasing power then the economy will get distorted. One needs to understand that.

What this package will do is to open up lines of activity for business people. For instance, when we build a road or the AIIMS or any other projects, it will have a multiplier effect on incomes, wages, profits, salaries and the employment. This will balance the economy.

We have tried to do a judicious balance between transfer payments and developmental expenditure. I think we will have about Rs 12-13 thousand crore of transfer payments and the rest will be developmental expenditure. That is kind of absorption that will happen over the next three-five years.

 

KL: But don’t you regret non-inclusion of Tunnel projects on Mughal road or the Kishtwar – Islamabad road?

HD: We had worked extensively on power and not connectivity. What happened to package towards the end was that connectivity was substituted for power. So there was a transplant and what was transplanted was the Bharat Mala concept. Nevertheless, when we have that kind of money for connectivity, it simultaneously gives me enough room not to spend any kind of money on connectivity from State Plan. See, one of the values of this Rs 80000 crore package is that it gives me enough room to utilise my money elsewhere now. For the next five years, I don’t see the state government spending from its own budget much money on connectivity. We can then divert that to specific projects, Chatroo-Vailoo being one of the very critical projects. It is also important for us that we execute also our key projects for ourselves. We have a much larger interest in inter-regional connectivity and we will pursue that with a lot of vigour. So over the next two-three years, you shall see funding and execution of work on that particular tunnel.

KL: Prime Minister here said that his heart is with Kashmir but if overall allocations are analysed on regional basis then Kashmir is somewhere between Ladakh and Jammu regions.

HD: I think that is a miscalculation. I saw some figures mentioning Rs Rs 29000 Crores for Kashmir. We have been very careful about the regional balance. In this coalition, I find heightened sensitivity towards Jammu and Ladakh. And let me tell you that the first time I drafted the PMRP, the only question the then CM Mufti Sahab asked me was how much I had kept for Jammu. So this issue was always there. This time, since BJP is a large part of this government and they have really emerged from Jammu, it was consciously looked at what the balances would be.

And there are three parts of the story: One is Jammu, Ladakh and Kashmir. Second is trans-regions but inter-state. So around 15-20,000 crore are not really for anybody particularly. Like Pakal Dul, Leh-Srinagar transmission line. But when you take them out and look at the other ones, my own recollection is: it is actually Rs 41000 crore for Kashmir and Rs 30000 crore for Jammu. Out of the Rs 41000, Rs 14000 crore is for Ladakh so it comes down to 31000 crore for Kashmir and Rs 30000 for Jammu. So there is no such imbalance in the allocations..

Per-capita wise it is also equitable. So I don’t see any imbalance. If at all, it comes through connectivity plans which are intra-state.

 

KL: You have got IIM and IIT in Jammu but only an AIIMS in Kashmir.

HD: There is a provision stated in the plan that IIM will be in Jammu with a campus in valley. We already have an NIT (National Institute of Engineering, Hazratbal) in Kashmir. And, we of course have an AIIMS.

We were not very keen, on having an IIM or an IIT because eventually it doesn’t benefit the state at all. The students and faculty comes from outside. We had sought reservation within IIMs, but IIMs doesn’t allow it so we were not very keen on it.

One can take up a case for IIM in Srinagar also but I will myself do something else. We could create our own Law University or a Medical University or even an Ethno-Musicology Institute for Kashmir because we have such a rich tradition of culture, music and arts; and we don’t have any such Institute in the state.

IIM doesn’t help locally much. IIM Ahmedabad is isolated in its own thinking. Such a great institution, but Ahmedabad has not benefitted from it.

KL: You are changing the budgeting process from this year. So how is this package linking and dictating the changes in the budget making from this year?

HD: I don’t think it is dictating any change, it would be additional resource. I was thinking up opening three budget lines to ensure better monitoring.

The change in the budget draws from 14th Finance Commission award. Even today I know how much I will get from central government then why should I wait for union budget to be announced and do my budget in March. The principle feature is when we do a budget in February / March, our works start somewhere in June. District Development Board (DDB) meetings happen in June. So my idea is we should have DDB meetings in December itself. By January we get a fix on what they want. Otherwise we do our budget and then they do their own plans and it doesn’t really gel.

The idea is to streamline the process and link it together to make it more inclusive at the monitoring level. So we will do a budget in January hopefully. We will pass it by February, by March I would allocate 50% of money to all the departments. Let them spend full month of March to do tendering and all that. So from the first of April, they can start the new works immediately. For instance, recently, the CM decided that the process of acquisition of land for roads could be taken up in winters. Winter doesn’t hamper that process and you have three months.

So, to be in-preparedness of April 1, we want to extend the working season right across for the year. Therefore if we start by early April, you will see a lot of spending through the year. This will improve spending capability as well decrease project completion timelines.

I also want to bring an innovation in our tendering processes and I am ready to fight a long and hard battle on this one. We can’t always be driven by price tenders where the lowest bidder wins the bid. So I want to introduce this concept of a ‘Five Criteria tender’. You may like to give weightage to all the criteria. The pricing may get a relatively higher weightage but we will also assess the credibility of the contractor, his track record, his balance sheet etc.  We want to introduce a pre-qualification bid system so that we don’t get people who can’t have a balance sheet to take a project. In nutshell, we want to revolutionise and change the whole process of tendering as to how government allocates work. It can’t be based singularly on price. We have moved far ahead now in terms of understanding that good quality expenditure is better than low quality expenditure. Everybody accepts that. So when you make the tender on the lowest price, it automatically means quality is not the premium. We want to transform that.

If you do have an early budget, the systems will improve and will  later on become routine. But in the first initial one or two years, we shall face certain problems as well as the system is being redesigned. But we have very cooperative ministers with whom I discussed this idea and they have said that this is a great idea and we should follow it.

KL: You always had money, you always had projects but you never had local people actually involved in implementing them.

HD:  I have been saying this for a long time that we need to build the capacities and we should try and do investments locally. What is the problem? The basic problem which you are referring to is about the missing multiplier. That once you invest, the money goes out. I think there is need for a lot of soul searching in the private sector.

First of all we need to be cooperative as well as competitive to look at the consortiums. We must build local consortiums because we don’t have the size yet. We must have that mindset to be participative in the whole process. So, I would actually look at local consortiums handling large projects. For that there has to be some transformation in the private sector. You need to understand that in the current package, the major chunk, around Rs 45000 crore is under control of state government while Rs 35000 crore is under central government. That means the Rs 45000 crore will designed, structured, and tendered by the state government. Last time, central sector failed. So this time, we are ensuring there is a monitoring mechanism that will not fail.

So if we have Rs 45000 crore to spend that itself builds the capacities. Once we start tendering, we may come across a small firm with a good balance sheet. The firm may not probably be competitive with a national player but once we design the tendering process, it will be done in such a manner that the regional players’ strengths are reflected. Second is we should also try and see, as a responsibility for the development of the private sector, that they don’t become sub-contractors of national contractors. It is better for them to be consortium partners than be sub-contractors both in evolutionary sense and also in a local situational sense. So they should resist this temptation of becoming a sub-contractor for L&T at half the price. L&T builds at X and they build at X-10. Regulatory-wise I can’t do it but it is for them to be able to resist that and instead of doing that they should form a consortium and compete with the L&Ts of the world.

KL: When you signed the ‘Agenda of Alliance’, there is clearly mentioned that you will be getting two power projects from NHPC back. And prior to the Prime Minister’s visit, it was in air that it is going to happen. Even I believe you were very optimistic about it. Then what went wrong?

HD: There was one element in power which I really regret not being part of the final package. It was the Rs 5000 crore we had kept as an element approved by government of India till two days before the announcement for buy-back of equity of NHPC power projects. That was one element that I wanted. It went through power ministry, the finance ministry, the PMO, which means there is a recognition of it. What we had worked in ‘Agenda of Alliance’, if you remember the words, was: ‘to work-out modalities for transfer’. This was the modality I was looking at.

Now, while you look at the face value, you have to also look at the other side of the picture. To be very fair and honest, we are telling Government of India, you give us Rs 5000 crore and we will be buying your equity out of it. This is the fact. It also implies as to how can we get money to buy government of India’s equity. I think eventually it will happen with slight modification and we will also contribute to it but the fact is that Rs 5000 crore was kept in the package and it was approved at various levels till it finally got thrown out. It will happen, may be not in this year but in a couple of years it should happen. I am very positive about that. It will be a game changer.

KL: They gave you equity of Rs 4000 plus crore for Pakal Dul of which they actually own 49%. What they give you then?

HD: This is our share of the equity and we will use some of it to fund some other power project. So there is some elbow room. One good thing about this package is it gives lot of elbow room to state government. For that we are very grateful to government of India and power ministry. We will use that equity. Earlier package gave us the viability gap funding. This project has given us clean upfront equity. So if you take Rs 50oo crore plus Rs 2000 crore of housing plus about Rs 1000 crore for traders plus Rs 3000 crore for migrants, this is cash. PMRP had zero cash. It sets off at different level and gives lot of elbow room for management of fiscal economy.

KL: You have been interacting with biggies in business within and outside India. What you intend to do?

HD: We are looking at attracting foreign investment into J&K. Every investment comes with embodied advantages: technology, work process, systems and processes. It is not just about money, it is what it brings along with it. So I think that is one part that we are looking at Dubai and others. We are looking at a change; let us say in construction industry in J&K, and we are hoping that they will be foreign investors, do public-private participation, raise the level of our things here.

Nationally we are hoping that we will have some national investment, private sector investment in what we think is a low-hanging fruit. Can we set-up 5-7 call centres which will probably absorb 5000-7000 people? So the idea is for the national investors and national corporates to come to J&K to provide some job opportunity with minimal capital. I have seen for last some years that national business is not really very keen in coming to Kashmir with heavy investments. But if we are able to provide them some solutions for service centers, call centers, then probably they may invest some amount of money and generate jobs.

So these are different things: one, a foreign investor who has more and direct investments and second national investor which is more employment oriented. That are the two paths we are following.

[Transcription: Riyaz Ul Khaliq]

from Kashmir Life http://ift.tt/1OpbU0G
via IFTTThttp://ift.tt/1iGhVXj