When in trouble, politicians and countries go back to the British economist John Maynard Keynes. Keynes in his magnum opus The General Theory of Employment, Interest and Money suggested that the way out of a low-growth or recessionary economic environment was for someone to spend more. In such a situation, citizens and businesses were not willing to spend more, given the state of the economy. So, the only way out of this situation was for the government to spend more on public works and other programmes.
The Indian government has decided to do just that. On October 24, 2017, the finance minister Arun Jaitley, announced a Rs 6.92 trillion ($107 billion assuming one dollar equals Rs 64.7) road building programme for 83,677 km of roads, over the next five years.
Out of this, the Bharatmala Pariyojana is to be implemented with Rs 5.35 trillion being spent on it for building 34,800 kilometre of roads. Economist Mihir Swarup Sharma writes in a column on NDTV: “Bharat Mala” is basically a reworked and updated form of the National Highways Development Programme that is almost two decades old.” The programme has been in the works for a while now. In fact, in an answer to a question raised in the Rajya Sabha, the upper house of Indian Parliament, the government had said: “The Public Investment Board has cleared the proposal for BHARATMALA Pariyojana Phase-I in its meeting held on 16 June 2017.”
In fact, there is nothing new about this. The Narendra Modi government, in the past, has shown a tendency to portray old schemes as new ones.
Let’s leave that aside and concentrate on how this programme will be implemented. The government said that substantial delegation of powers has been provided to the National Highways Authority of India and other authorities and government departments.
Over and above the Bharatmala Pariyojana, roads of length 48,877 km will be built under other current with an outlay of Rs .57 lakhs crores.
This road building should help a significant portion of the one million youth entering the Indian workforce every month, find jobs. A large portion of this workforce is unskilled and semi-skilled and road building projects will help cater to this completive advantage of access to cheap labour, that India has. Just the Bharatmala Pariyojana is expected to create 14.2 crores mandays of jobs, according to the government.
The government plans to raise finance for these road projects through a variety of measures. For the Bharatmala Pariyojana, Rs 2.09 trillion will be raised as debt from the financial market. Rs 1.06 trillion will be mobilised as private investments through the public private partnership. The remaining Rs 2.2 trillion will be provided out of accruals to the central road fund, toll collections of National Highways Authority, etc.
For the other road projects Rs 0.97 trillion will come from the central road fund and Rs 0.59 million will come from the annual budget expenditures of the government in the years to come.
Hence, on paper this sounds like a fool proof idea. The government will build roads. It will employ many people in the process and pay them. This income when spent will spur the businesses as well as the economy and India will grow at a fast-economic growth rate. QED.
Only, if things were as simple as that.
The government plans to build a total of 83,677 km of roads over five years. This implies building 16,735.4 km of roads on an average in each of the five years. Is that possible? Let’s look at the record for the last three years.
In 2014-2015, the government built 4,410 km of roads in total. In 2015-2016, this jumped to 6,061 km in total. In 2016-2017 (up to December 2016), the government had built 4,699 km of roads. This data is from the annual report of the ministry of road transport and highways. A report in The Hindustan Times suggests that in 2016-2017, the government built 8,200 km of roads. If the government has to achieve the road building target that it has set for itself over the next five years, it has to more than double the speed at which built roads in the last financial year. And then maintain it for five years. This, seems like a tall order.
Over and above this, acquiring land to build roads will not be an easy task. Nitin Gadkari, the minister of Road Transport and Highways told the Press Trust of India in an interview that even though land acquisition is “tough and complicated“, “it is not a problem for the ministry as farmers and others were making a beeline to offer their land for the highway projects after enhanced compensation.”
But this is not going to anywhere as easy as the minister made it sound. Take the case of the Delhi-Mumbai Industrial Corridor which was announced almost a decade back. While work has started on it, most of the corridor is still plagued by land acquisition issues.
To conclude, building roads to drive economic growth is a very old idea. In fact, it was put in action even before Keynes wrote about it in an indirect sort of way in The General Theory of Employment, Interest and Money.
While Keynes was expounding on his theory, it was already being practiced by Adolf Hitler, who had deployed 100,000 workers for the construction of the Autobahn, a nationally coordinated motorway system in Germany which was supposed to have no speed limits.
Hitler first came to power in 1933. By 1936, the German economy was chugging along nicely, having recovered from a devastating slump and unemployment. Italy and Japan had also followed a similar strategy.
How well will things work out in the Indian context? It will all depend on how well the government is able to execute the building of roads. The good bit is that Nitin Gadkari, one of the better performing ministers in the Modi government, is in charge. The bad part is that good execution is not something India is known for.
The column originally appeared on BBC.com on October 28, 2017.