Friday, February 13, 2009

Flagship programs as fiscal stimulus

The Government of India have sanctioned an additional Rs 1000 Cr and Rs 4000 Cr under the JNNURM and PMGSY respectively. Similar increases in allocations for other flagship schemes like the RGGVY (for rural electrification), Accelerated Rural Water Supply (ARWS), and Sarva Siksha Abhiyan (SSA) programs can be expected. However, in so far as the purpose of this additional allocation is to expand aggregate demand, it is critical that this money gets channelled into the economy at the earliest, which in turn demands that these works get sanctioned and tendered immediately, and executed swiftly. This requires addressing a few issues

1. Given the long-drawn out process in sanctioning, tendering, and execution of the regular works under the JNNURM and PMGSY works, there is a strong case in favour of adopting a fast-track bureaucratic sanctioning and tendering process. Foremost, priority should be accorded towards swift releases of the funds, so that works don't get held up for lack of adequate funds.
2. Instead of the big works, requiring elaborate project appraisal and tendering process, these additional allocations should be utilized for those program components involving smaller works. For example, the JNNURM sanctions should be confined to the BSUP component, which seeks to provide basic civic amenities like roads, water and sewerage in slums, since these are smaller works whose estimates can be prepared, tendered out, and executed quickly.
3. As a priority, those projects already pending for sanction should be cleared immediately. Project proposals which involves expansion or addition to an already sanctioned work should be expedited, and if possible (eg. repeat orders on procurement) entrusted to the same (or even other) contractor on similar terms as the original bid. Thus for example, a road which was sanctioned upto some location, and which requires further extension, can therefore be sanctioned and entrusted to the same contractor at the same conditions.
4. Incomplete projects, and there are no dearth of them (witness the incomplete drinking water or sewerage schemes or incomplete school and hospital buildings), sanctioned under other schemes and held up for lack of adequate funds, should be taken up on priority. Since these are already presumably tendered out, the works can be completed by the same contractor (or another contractor on the same terms) by incentivizing him with appropriate "cost escalation clauses".

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