Modi’s Grand Bihar Package is Not All That it Seems

BJP workers taking out a victory rally in Patna after Prime Minister Narendra Modi announced a package of Rs.1.25 lakh crore for Bihar. Credit: PTI Photo

When Prime Minister Narendra Modi dramatically unveiled a mega development package for Bihar worth Rs.1.25 lakh crores, the first thought that struck me was where would the finance ministry get so much money for Bihar alone. That day I happened to run into a senior finance ministry official who told me in a somewhat cryptic manner that most of these announcements "could be part of ongoing development programmes." The future expenditure on them was thus clearly part of already planned programmes. Also much of the spending announced by Modi is to be implemented over 10 years, way beyond this government's tenure.

The numbers look very big and bombastic, much like the several lakh crores that the coal bearing states would receive over the next 30 years, flowing from the coal auctions. So the art of packaging involves throwing out big figures of expenditure or receipt for 10 to 20 years. Under Narendra Modi, packaging of development programmes is more art than science, perhaps an abstract art whose deconstruction is open to subjective interpretations.

The bulk of the package announced by Modi would be implemented by the public sector companies like Indian Oil Corporation, NTPC, National Highway Authority of India(NHAI) who have enough cash. That explains why the burden will not fall so much on the Centre itself.  If anything, the Modi government is heavily leaning on these PSUs to take up these projects. Some PSUs are doing it against sound techno-economic advice received from experts. More on that later.

Private sector not interested

The government agencies would implement the bulk of the national highway projects (about 2,775 Kms) which also include building four lanes as well as bridges across rivers etc. This would cost Rs.54,000 crores and will take up to 10 years to finish. Normally, NHAI would have invited private parties to do these projects under a public private partnership (PPP) arrangement as was the case in the past. However, private companies have virtually withdrawn from executing fresh national highway projects due to stressed balance sheets. So the NHAI, under the Ministry of Roads and Surface Transport is doing the bulk of these projects by directly supervising construction contracts.

In fact, if the economy picks up in two to three years and private companies return to execute road projects, the Centre cannot continue to claim it to be part of its special financial package for Bihar!  The Centre today is forced to directly handle national highway projects because of the lack of interest shown by  private companies.  Tomorrow, a big flow of private investment in national highway projects will blunt the Centre's claim that it had given a special package to Bihar for roads.

Similarly, the Indian Oil Corporation(IOC) had been examining for the past few years the prospect of expanding the capacity of its refinery in Barauni, Bihar. The capacity was proposed to be expanded from 6 million tonnes to 15 million tonnes. According to R.S.Butola, former Chairman  and Managing Director of IOC, " We examined the idea of Barauni refinery expansion. But our conclusion was it would be very costly to transport crude to land- locked Bihar via the Haldia port on the East. The relatively new private refineries run by Reliance Industries and Essar on the Gujarat coast would have huge advantage over the expanded capacity of Barauni. In fact, IOC, as an alternative, was exploring the idea of setting up a new refinery off the Gujarat or Maharashtra Coast to be able to better compete with RIL and Essar." Crude tankers from the Middle East have the shortest route to India's western coast.

Going by Butola's argument, IOC might be making a mistake spending over Rs.13,000 crore on the expansion of Barauni which will not give IOC much of a competitive advantage. Modern refineries don't produce much local employment either. No wonder, even after this government came to power, the Cabinet had first decided not to go ahead with this project based on a techno-economic feasibility study. However, subsequently, the ministry leaned on the IOC to revive the Barauni expansion project.

The Modi package of Rs. 1.25 lakh crore also has power generation projects to be implemented by PSUs like NTPC. About 4500 megawatts of new power is planned to be generated. These will take at least ten years to fructify. One is not sure whether simply producing more power is the real answer today or fixing national and state transmission/distribution systems makes more sense. There is little time to analyse these policy intricacies. Meanwhile, Modi has decided to add more mega generation capacity to the Bihar package. Overall, the PSUs are being used calculatedly by the Prime Minister to further his political ambitions. One won't be surprised if a similar exercise gets repeated in the UP state elections in 2017.

If you add up the PSU spends in the oil, roads and power sector, it would easily be about 70% of the total Modi "special package" for Bihar. No wonder, finance minister Arun Jaitley is not worried at all!

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