Archive for June, 2015

III. ‘Fiscal constraint’, fake alibi for inviting foreign capital

The Bibek Debroy Committee on the Railways[1] pleads the Government’s financial stringency as an alibi for turning to private and foreign capital: “With Government funding getting thinner on account of the Government itself being hamstrung for resources, …IR has little option but to look for non-government sources of funds for investment.”

In his 2015-16 Railway Budget speech, the Railways minister projected a seemingly ambitious programme, of investing Rs 8.5 lakh crore over the next five years, with the help of not only multilateral agencies such as the World Bank and Asian Development Bank, but also international financial investors:

…the scale of our investment needs is such that it will require us to seek multiple sources of funding…. For financing remunerative projects through market borrowings, it is intended to tap low cost long-term funds from insurance and pension funds, multilateral and bilateral agencies which can be serviced through incremental revenues. Railways will create new vehicles to crowd in investment from long-term institutional investors and other partners.

Debroy points out that foreign investors such as international insurance companies and pension funds will need to be provided assurance that they are not lending to the Railways as a whole, but to specific, profitable projects which have to be isolated financially from the rest of the Railways: “owing to the historical baggage of a large shelf of projects riddled with time and cost overruns and continued piece meal allocations, IR needs to change its investment strategy through ring-fenced investments in High Yield Projects.”


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Part II: Debroy Committee: Campaigner for privatization

The latest, and brashest, exponent of the view that the Government lacks funds, and hence must turn to private finance, is the Bibek Debroy Committee on the Railways. The Committee submitted its final report in June 2015.[1] Unusually, it contained no member of the Railway Board; of its eight members, only one had a Railways background (a retired financial commissioner of the Railways); others included a former corporate chief and a former managing director of the National Stock Exchange.

The Committee’s interim report, released in March 2015, unabashedly sang praises of privatization: (more…)

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Part I: Starving Rail

The extreme miserliness of the Indian State toward the Indian Railways is a striking example of economic irrationality; but it is an irrationality imposed by the reigning class interests. A thorough-going programme of public investment in the Railways would increase the productivity of the economy as a whole, render Indian industry more competitive, and do so without placing any net burden on Government finances (as we shall show). Nevertheless, the State refuses to undertake such a programme.

The reason for this seemingly puzzling refusal is that such a public investment drive in the Railways would in fact run counter to the entire thrust of current State policy. That thrust requires (among other things) that the public sector be systematically starved of investment, so as to create investment opportunities for predatory international financial capital. State policy thus deliberately creates a situation in which privatization becomes the only option on the table. (No positive results of public sector investment are permitted to emerge or survive either, since such results would cast doubts on the broader project of privatization.) Hence even an infrastructure such as the Railways, so critical to India’s material goods-producing sectors and to the general health of the Indian economy, is held hostage until it can be made to yield profits for financial interests.

Neoliberal economists argue glibly that such a profit orientation will make the Railways both self-sustaining and more efficient. However, their argument betrays a basic lack of understanding of the working of capital-intensive infrastructure as such. Railways require very large investments, and these serve the economy best when they generate only moderate, stable revenues, over long periods. There is an inherent contradiction between (i) trying to generate financial returns on rail investment high enough to attract footloose private finance; and (ii) ensuring railways play their role, efficiently, as the veins of the material economy. (more…)

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