The Finance Minister's noble and confident intent of building 20 kms of roads per day, offering banking services to the smallest villages and stimulating infrastructure growth were well received during the Budget speech. However, as seen several times before, execution seems to be the bone of contention.
Be it power projects or road construction, the implementation rate so far has little to write home about. The Economic Survey itself was testimonial to this. "Against the target of awarding projects for a total length of about 9,800 km under various phases of National Highways Development Project (NHDP) during 2009-10, projects have been awarded for a total length of about 1,285 km up to November 2009," states the Economic Survey.
Moreover, the survey questions the bankability of the PPP (public private partnership) projects. The mere 13% execution rate affected the reputation of the government so badly that the reason for funding delays included 'lenders' perception of high risk'. Thus with the government constrained of borrowing, the PPP projects at the mercy of private parties may come to a standstill unless execution picks up pace. In addition, the bottlenecks identified for slow progress in road projects included delays in land acquisition and environment clearances.
Bank licences for private sector and non banking companies an have an equally sealed fate unless executed with the noble intent to the tee. With private sector banks keen to offer credit cards and personal loans, only 7% of their branches are currently in the hinterlands. The small sized deposits there are hardly remunerative to the private sector players. Even with the additional licenses this figure may not increase unless the bankers are content with farmers buying consumer durables on their credit cards. It will be bankers praying to the Rain Gods then!
The roadmap for bringing down fiscal deficit was indeed praiseworthy. But most of it relied on indirect taxes. Although that brings the nation's tax to GDP ratio at just 12% from 10% in this fiscal, policy makers will be challenged by the implications of an uncontrolled inflation. Politically sensitive areas like rise in fuel and cement taxes particularly will have to pass the test of time before seeing their way into the government coffers.
Implementation of Goods and Services Tax (GST), Direct Tax Code and Unique Identification numbers (UID) in FY11 are also on the cards. However, the numerous delays in implementation of VAT raises doubts about the timeliness of the targets this year as well.
The government therefore has a tough job at hand. While so far the growth in industrial production, harvest of rabi crops and interest rates have all been reasonably benign, the way forward could be much tougher. With expectations of more social expenditures and growing economy burdening upon fiscal prudence, it will have additional challenges to overcome on the execution front.