Optimizing the Benefits of Bail Outs
Experts have called for another fiscal stimulus/bailout to prevent economy slipping due to Covid-19 induced measures and slowdown. It is time to evaluate the impact of such stimulus packages objectively. Past experience indicates that the industry only looks for low hanging fruits rather than fully optimizing the benefits of such packages.
From time to time, India appears to be caught in a vicious economic cycle, which prompts the industry and its agencies to make a call on the government for bail outs. Experts and economists are not on the same page about the bail outs or special package to be given to the industry to bail it out from the slow spell. One school of thought maintains that it can create moral hazards and could be anathema to the market economy. Industries should be able to stand on their feet and not ask for government bail outs when in distress. Asking such bailout packages means socializing losses. Instead of asking bailouts/stimulus packages, industries should seek reforms that let market forces operate freely. However, another group of experts makes a strong case for such bailouts.
Whatever be the views, the time has come when the industry should be able to take care of itself, review its strategies from time to time, and take corrective measures to resurrect the situation. India has announced a Stimulus Package not only to give financial relief to the industry but also take care of various stresses and strains confronting the people.
Beneficiaries’ interest, by and large, has always been confined to getting financial relief, but sadly, they always miss the opportunity to revisit their systems to affect improvements in their working. Due to a lackadaisical or listless approach, they are not able to optimize the full benefits flowing from the bailouts.
Feedback on bailouts
According to a report, between FY09 to FY19 over a dozen bailouts were announced, infusing over Rs. 4 lakh crore of tax payers’ money into various sectors like roads, power, renewable energy, and others. These sectors recklessly went for extravagant expansion plans and squandered the capital on projects that appeared to be more optimistic on paper, than making banks and financial institutions reduce their credit intake, which, in turn, became averse to lending to these entities. Indian Airlines companies have always relied more on fine tuning their operational and financial system rather than getting bailouts, added the report.
Decoding the approach
Interacting with the author, Dr. Chatterjee, a former UNIDO Project management expert, explained that most of the time our stance on bailouts has been reactive rather than proactive - displaying irrational exuberance about the financial aspects of the proposal alone. “We start the work with great fanfare but soon our initial euphoria is lost, and our tempo of activities steams out the moment constraints start. There is a need to identify the critical components of a proposal and undertake some model studies of various techno-economic aspects of a bailout proposal and grasp the issues comprehensively.”
Management consultant Dr. Kapur states that we have lose sight of the substantive issues of the proposals. Our focus is only on low hanging fruits— the financial relief aspect alone. The focus should be on how it injects demand. Such a patchy approach causes distortions in addressing the upstream and downstream benefits of the proposals.
Minimizing bailouts
At a seminar in Delhi some out-of-the-box suggestions emerged on minimizing the need for announcing bailouts from time to time. One important suggestion was to dilute our focus on PPPs, though they have stood the test of time. Instead, it was suggested, to develop infra projects as private enterprises - promoting a protocol on the Swiss Challenge concept. The government has already tested the efficacy of this concept in some important road and railway projects.
The Swiss Challenge concept allows an infra developer to come up with a Suo motu proposal without waiting for the government call for bids. It is based on the merit of the proposal. It frees the government of its outlays on financing the projects and shifts the entire responsibility of running the project on the developers. At the end of the day, they have to sink and swim on their own.
Conclusion
The conclusion is inescapable. What is called for is a radical shift in the projects are conceived, planned, executed and implemented on a positive outlook on bail out proposals with an eye on posterity.
Published on:
02 September 2020
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