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Attracting investment for UP won?t be easy

EVEN IF the Uttar Pradesh Government is ready to bring private investments for development and growth, it will be difficult to attract investors when the Centre is gradually pushing states to generate their own investment capacity. In the 10th Plan, Uttar Pradesh depended mainly on the private sector for resources. The private contribution was 71 per cent and only 29 percent was from the public sector.

india Updated: Feb 25, 2006 01:35 IST

EVEN IF the Uttar Pradesh Government is ready to bring private investments for development and growth, it will be difficult to attract investors when the Centre is gradually pushing states to generate their own investment capacity. In the 10th Plan, Uttar Pradesh depended mainly on the private sector for resources. The private contribution was 71 per cent and only 29 percent was from the public sector.

The fact suggests that the State Government could not mobilise expected resources in the absence of proper back-up of infrastructure. Therefore, much depends on Central transfer to the State, which may decide the fate of public spending and development of infrastructure specially irrigation, rural credit, education and health. A resource-starved Centre, because of gradually cutting down of its flow of resources, may announce popular packages to lure voters, but it can hardly reverse intensifying negative impacts of reforms on poor states and marginal sections of society meaningfully.

Expectations of high growth rate of the Indian economy during 2005-06 and better revenue collections closer to targets, have kept the morale of the UPA government very high and, therefore, double digit growth rates have become considerable options for the 11th Five Year Plan. But the real challenge is to reduce regional disparity which has increased significantly between rich and poor states from 100 per cent in 1980s to 200 per cent in the post-reforms period.

Unless special package is provided by the Centre to the State to strengthen infrastructure – economic and social – substantially, achievements of millennium development goals will be a difficult task. Existing mode of devolution based on the Gadgil formula is not going to serve the purpose for poor states like Bihar, Orissa, Uttar Pradesh, Rajasthan, Chhattisgarh and Jharkhand. They are bound to get less than richer states. This may not end the trap of poor infrastructure, poor governance and poor growth performance.

The Union Budget is a reflection of the directions of policies of the government.

Budget 2006-07 to be presented before Parliament on February 28, 2006 will broadly maintain the continuity of the features and contents of earlier budgets in conformity with earlier budgets since 1991 for the faster pace of economic reform to restructure Indian economy. Since 1991 contents of budgets have been consistent irrespective of political parties. Mr. Finance Minister has a tough time to strike an intelligent balance between political compulsions and fundamentals of economics. Political compulsions are of coalition government, specially pressure from Left parties to adhere to national common minimum programme, to consider the interest of the common man and also in view of coming assembly elections this year or next year. Economic reforms with human face have also got space for public consumptions and to contained resentment of the people.

Implementation of popular policy of the National Rural Employment Guarantee Act 2005 in 200 districts of the country will require additional funds and the State government also need additional funds to provide unemployment allowances in case of failure to provide employment. Irritants of funds availability for such popular programmes surfaced in a controversy between the Ministry of Finance and the Ministry of Rural Development.

The irritants are mainly because of substantial reduction in financial resource mobilization as a result of restructuring of fiscal policies. Reduction in customs and other duties since 1991 have been making the State exchequer poorer in subsequent years. Disinvestments of public sector units have although been adding some funds immediately to the State exchequer but have closed further addition of public earnings. The Fiscal Responsibility and Budgetary Management Act and the Twelfth Finance Commission’s recommendations for increasing tax-GDP ratio, lowering fiscal and revenue deficits and debt GDP ratio and the Rangrajan Committee’s recommendations for squeezing subsidies on petroleum, etc., may have unpopular contents and measures to correct fundamentals of the economy. Hence the options are very limited, as the prime minister has assured moderate and broad based tax away from confiscatory level. Needless to mention that governments have not been able to reduce average gross fiscal deficit from 8.17 per cent during 1980-81 to 2004-05. Although averasge gross primary deficit has been reduced from 5 per cent to 2.65 per cent, average revenue deficit has escalated from 1.88 per cent in 1980s to 4.9 per cent in between 1991-92 to 2004-05. It suggests that substantial flow out is of interest payments.

First Published: Feb 25, 2006 01:35 IST