Demand Vs Supply Economics. Steps the government should take immediately

 Over last several months, several reforms have been rolled out by the NDA government. Most of these are supply side mesaures and top 3 of them are:

1. Reduction in corporate tax.

2. 20Tn Rs Atmanirbhar package - mostly in form of credit.

3. Farm Bills - Freedom to farmers to sell produce out of APMC.

However, these measures will only help when there are proportionate reforms on the Demand side. The middle class which is the highest contributor to direct and indirect taxes needs sufficient cash in hand or incentives to spend. The government should do the following in the least effective immediately:

1. Slash personal income tax by half across all brackets or double the brackets with same rates(the former option being better).

2. Incentivize the middle class to spend on the items having higher GST rates and provide them tax exemption on the GST paid.

3. The business class gets tax benefits on purchase of cars via depreciation benefits. The government should pass on these benefits to the salaried class. This will give huge boost to the collection of compensation cess and GST along with the direct and indirect jobs the auto industry would create.

Krishnamurthy Subramanian: The new CEA's view on Demonetization: Did the poor really suffer?

In the political battle that has emerged out of the demonetization exercise, both proponents and opponents are ostensibly defending the interests of the poor. Some politicians are relying on anecdotal evidence to advocate the difficulties being faced by the common man. We instead use data from the National Sample Survey Organization’s (NSSO) survey to estimate such difficulties faced by the poor. The survey provides estimates of earnings in cash and kind by different income categories. We use the survey data for 2011 which comprised approximately 500,000 individuals across the country. Our estimates suggest that the poor are likely to have visited a bank branch at most once to exchange their earnings in the old currency notes to new currency notes. Thus, we infer that the politicians advocating the difficulties faced by the poor are being disingenuous in pushing their claims for political gains.

To estimate the above, we make the following arguments. First, the poor are unlikely to have substantial savings stored in Rs500 and Rs1,000 notes. Second, the bottom half of the population ends up spending almost their entire earnings on consumption. Third, only two weeks have passed since the demonetisation was launched on 9 November. Therefore, the weekly earnings of the bottom half of India’s income earners provide us the estimate of the cash that the poor would have in their kitty, which they would have to exchange in a nearby bank or post office. Finally, since the survey was conducted in 2011-12, we inflate the earnings by the average rate of inflation per annum during the period from financial years 2011-12 to 2016-17. This is likely to overstate the earnings of the bottom half of the population because, unlike salaried individuals and other richer sections of society, the earnings are unlikely to get adjusted for inflation in a consistent manner. However, the overestimation of earnings would only reinforce the bias against the inference that the poor are likely to have visited a bank branch at most once to exchange their earnings.

As the adjoining table clearly demonstrates, the bottom half—be it rural workers, daily wagers, weekly wage earners, or fortnightly wage earners—earn less than Rs1,350 per week. In fact, even the bottom half among the urban population earns at most Rs1,970 per week. Even if the bottom half of the population has saved up to two weeks of their earnings, the amount they have to exchange will be less than the Rs4,000 limit that was set by the government in the first week. The above inference assumes that the daily, weekly or fortnightly wage earners were fully employed in the past several weeks so that they could not only earn enough for their consumption but also to save. In practice, such wage earners are chronically underemployed. As a result, the total cash in the hands of the bottom half is likely to be less than Rs4,000. Thus, it is quite clear from this data that the bottom half of the country’s population would have by now visited the local bank or the local post office at most once to exchange their old currency.

Click here for enlarge

This conclusion then suggests that the long queues seen stem from two sections of the population: (i) people from the top half of the country’s income distribution, i.e. the richer folks, who want to exchange their honestly earned savings for new currency; and (ii) people who are acting as agents for the dishonest. The significant decrease in the queues after the government decided to use indelible ink to identify people that have exchanged their currency suggests large presence of the second category of people.

Beyond doubt, the former category is inconvenienced and the government and the Reserve Bank of India should take all steps to ease their difficulties. But this category comprises people from the top half of the country’s income distribution, certainly not the poor. In contrast, those from the second category who stand in the queue are only making efforts to earn a premium from the dishonest, who are willing to pay them such premium to convert their black money into white. No politician who genuinely wants the country to clean up the black money menace should sympathize with the latter category. After all, they are abetting the dishonest in evading the legitimate tax and penalty.

With respect to the difficulties that the country’s poor are likely to face till 30 December, note that around seven weeks of earnings are left before the deadline for depositing the demonetized notes. So, based on the estimates provided in the adjoining table, the maximum cash earnings of the bottom half would be around Rs8,000. Even if we suppose that they will be paid entirely using old currency till December, at most two more visits to the local bank or the local post office would suffice to deposit their old currency. Of course, it is quite likely that these workers refuse to accept their wage in old currency. In that case, they would not need to make the visit at all. As workers in this income category are likely to have been underemployed sometime in the past, they would have a bank account to receive Mahatma Gandhi National Rural Employment Guarantee Act payments. Therefore, future wage payments can be made via cheque by honest employers. In this case, such workers may have to visit the bank once to encash the cheque.

Note, we are not arguing that poor people are not facing difficulty because of demonetisation. Of course, standing in the queue for a day can mean loss of a day’s earnings for the poor. However, using the large sample data and careful analysis, we would like to highlight the exaggerated claims of disingenuous politicians who profess to be fighting for the poor.

Source : Livemint

Arvind Subramanian,CEA Vs Raghuram Rajan RBI Gov. Different tales.....

                 When Arvind Subramanian was appointed as CEA, the decision was hailed and supported from all the quarters. Former FM P Chidambaram, mentioned that Subramanian had for long been a choice for this post. He was appointed as CEA,despite the fact that he had been highly critical of NDA's budget in 2014. This showed that the government was ready to accept criticism and for a course correction in the eventuality. There have been many hits and misses in last 18 months. One of hits have been we have achieved a greater macro economic stability. Most of this had been aided by lower imports and lower commodity prices. We need to achieve a savings rate of 36% as it was in the high growth era, low inflation(in the range of 4-6%) and million jobs per month. The budget needs to be focussed on agriculture, infrastructure and education. This is where the CEA and RBI governor can play an important role. With two of these finest minds in the world, we need no other economist to prepare a blueprint for the economy and fire it on all cylinders.

Here is a good article on The Hindu comparing the stints of both these personalities in their respective roles so far.

__________________________________________________

Chief Economic Advisor (CEA) Arvind Subramanian started 2015 on an over-optimistic note. He is likely to have ended it in disappointment. The economy is slowing down: in the first six months of the financial year, real GDP grew 7.2 per cent, slower than the 7.5 per cent in the corresponding earlier-year period. In 2016-17 too, GDP growth will not be significantly greater unless some specific steps are taken, the CEA has said. Thankfully, there are few takers in the government for the main measure he is suggesting: a further pause on fiscal deficit reduction.

About a year ago, barely months into his job in the Finance Ministry, Dr. Subramanian projected a sharp recovery with growth of up to 8.1-8.5 per cent. He forecast the acceleration even though he did not expect any big-bang reforms (on this count, his forecast was correct). In his scheme of things, the spurt in growth would come from incremental policy pushes, such as to subsidy reforms, direct benefit transfers, and financial inclusion of the poor.

The brave outlook underestimated the weakness in the exports sector. It relied on the Rs. 70,000 crore of public investment that was earmarked in the year’s budget — as suggested by him — for building infrastructure to stimulate private investments. The stimulus he had designed was implemented. It proved insufficient to generate the growth impulses needed to kick-start the over $2 trillion economy and rekindle animal spirits gone numb in the dying years of the United Progressive Alliance’s 10-year stint due to policy paralysis and corruption scandals.

As things stand, it seems unlikely that industrial growth will cross 5 per cent. Growth in lending by banks to industry, a proxy for investment sentiment, hasn’t budged from a 20-year low. Corporate balance sheets are burdened with mountains of debt. The worst exports performance since 1952-53 is inevitable.

A government not shy of its business-friendly credentials should have picked up these stress signals early on and administered the remedies, but its mandarins were too excited: international agencies had declared that 2015 was going to be the year in which India would race past China (the Chinese economy is about five times as large as India’s) to be the fastest growing economy in the world.

It was. But that this had probably more to do with China slowing down rather than India picking up, and the stark difference in size made the comparison between the two economies irrelevant. But the cheerleaders among bureaucrats and ministers couldn’t be bothered with technical minutiae — all that mattered was that India is a bright spot in a gloomy global economy.

Why is growth slowing?

In the boom years during the UPA government’s tenure, four engines had powered the economy. Of those, just two are still running: government investments and private consumption. Exports and private investments, the other two, are out of steam. The UPA years saw an investment boom, which was bound to turn sooner or later, and has.

Lower borrowing costs could restart the investments cycle but the hands of the Reserve Bank of India Governor, Raghuram Rajan, are tied. An agreement that the government and the RBI signed a year ago has made controlling inflation the main objective of monetary policy. The agreement formalised a policy goal that the central bank has always pursued anyway, except that it set the targets in terms of consumer price inflation. Moreover, government-owned public sector banks have been slow to pass on to borrowers the rate reductions that Dr. Rajan has announced. Banks are a cartel and keep interest rates high because higher interest rates mean bigger profits.

Dr. Rajan is well on course to bring inflation within the 6 per cent target that the government set around the same time the CEA made his cheery growth forecast. In fact, the ‘rock star’ Governor, with whom the CEA has worked closely earlier in the International Monetary Fund, has had an excellent year. India was still one of the ‘fragile five economies’ when the year began. Yet, it is the only one to have come out of the phase of heightened currency volatility and current account deficit instability that characterised the group. Besides, the purse-string managers of the government’s budget in North Block, who haven’t yet let its fiscal deficit slip, Dr. Rajan too deserves credit for restoring India’s macroeconomic stability, which the government hasn’t quite leveraged to push growth, just as it has been caught sitting on its hands despite the favourable global trends in oil and commodity prices.

On growth, Dr. Rajan has been spot on. By the end of the summer, he had cut the Reserve Bank’s GDP growth projection for the year not once but twice. In July, even as Dr. Subramanian was sticking to 8.1-8.5 per cent, Dr. Rajan’s call was 7.4 per cent.

The overconfidence in Delhi lasted till the last day of November, when new official data released, revealed a slowdown instead of the promised smart recovery. Within hours, the government cut its growth projection to 7.5 per cent.

In the following weeks, the CEA did a few mea culpas on earlier positions, raised fresh concerns about the state of the economy and declared the official data puzzling and unusually difficult to interpret. And he called for reassessing the government’s commitment to fiscal deficit reduction.

Environment for lower interest rates

Abandoning the committed path for fiscal rectitude now will put macroeconomic stability at risk. It might end up hurting growth rather than supporting it with the government and the RBI working at cross purposes. How? To fund a wider deficit, the government will have to borrow more, which could push up interest rates and crowd out private borrowers.

Inflation might have been tamed but the Reserve Bank’s key interest rate, despite cuts adding up to 125 basis points in 12 months, is still high for a revival in investments and growth. Although higher public investments are desirable, the government needs to do all it can to create the environment for lower interest rates, not higher.

Public investments can be increased without deferring deficit reduction, though. There is a perceptible improvement in the quality of government spending with a shift towards capital expenditure. This can be built upon. Savings from efficiency in spending remain an underrated resource. The government ought to cross the political hurdles for strategic disinvestment. If the government’s fiscal consolidation would distract from the demand in the economy, much of its spending will also add to it. Government employees’ salaries and pensions are set to rise as the Seventh Pay Commission award is accepted and disbursed. The hikes are bound to result in a surge in demand for goods and services. So are other transfers from the government.

The growth and the outlook won’t seem as lacklustre if Dr. Subramanian had corrected his forecast earlier, as Dr. Rajan had. He publicly differed with Dr. Rajan and took a bet on accelerating growth, and it looks as if he is going to lose the bet.

Source: The Hindu

The PPP way to growth

While big-ticket reforms are held up, let’s address infra concerns

Again a goodread from The Hindu's Businessline, an excellent newspaper for policy making articles.

That the Narendra Modi government ran into a wall of Opposition in Parliament in trying to push reform legislation in coal and insurance is unfortunate Even so, ordinances cannot institutionalise a new model of governance; at best, they may only signal to a restive industry that the Centre means business and buy some time to cobble up a consensus in Parliament. But even if such a consensus on amending laws on land acquisition, labour, mining and the financial sector takes time in coming, there are enough areas where supply side constraints can be eased without breaking into so much as a sweat. One of these is allowing for renegotiation in new PPP projects, if not in existing ones. The 3P India initiative, announced by Finance Minister Arun Jaitley in the Budget, marks a salutary attempt to address “weaknesses of the PPP framework, the rigidities in contractual arrangements, the need to develop more nuanced models of contracting, and speedy dispute redressal”. This process needs to be cranked up for the over 900 PPP infrastructure projects in the fray, involving a credit exposure of nearly ₹9 trillion.

In this context, the recent RBI circular extending the so-called 5:25 scheme to existing infrastructure projects is to be welcomed. These projects can now get finance over 25 years, with the banks being allowed to refinance or sell out their loans every five years. This is a way out of the stressed assets logjam that has frozen up both the supply and demand for credit. The growth of bank credit to infrastructure sectors fell from 45 per cent in 2011-12 to 18 per cent in 2013-14 and has been trending downward since. Banks cannot lend beyond a tenure of 10 to 12 years due to their asset profile, and this impacts both the viability of the loan and the costing/pricing of projects such as roads and metros, among others. The India Infrastructure Finance Company, set up in 2006 to overcome the asset-liability mismatch, does not seem to have made enough headway.

However, as the Finance Minister observed, finance is only one of the problems weighing down PPPs. Contracts need to be renegotiated when macroeconomic shocks overturn earlier assumptions. To ward off allegations of crony capitalism or litigation from bidders who lose out in the first stage, it is important to create a credible institutional mechanism. This is precisely what 3P India should set out to do, besides thinking up innovative financial instruments and concession agreements. It could ease up exit conditions, so that promoters can use the freed up capital for other projects. Pricing should combine public purpose considerations with those of risk and efficiency. Pushing big ticket reforms is no cakewalk in a raucous polity such as ours. Yet, a robust PPP framework can make a difference in cranking up investment and growth.

New subsidy regime | The HinduBusinessline opinion, a good read

The Centre has adopted a pragmatic approach to cooking gas subsidies

The reintroduction of the direct benefits transfer scheme for the supply of cooking gas, after its withdrawal in March this year, is a welcome signal that subsidy targeting is back on the policy agenda. Unlike its UPA avatar, cash transfers will now be based on LPG consumers providing their bank account numbers, rather than Aadhaar numbers, to distributors. The change in approach is a way of addressing the Supreme Court ruling in March prohibiting Aadhaar from being made compulsory in the implementation of welfare schemes. The Centre has also drawn up a scheme to make an advance deposit in bank accounts in an apparent bid to offset the hardship of coughing up the market rate that poorer customers may face while making their first purchase under the new scheme. Those without a unique identification number may switch to Aadhaar-based bank accounts once enrolled. The modified DBT scheme is a further indication that the Modi government will use Aadhaar as a vehicle for the delivery of benefits and subsidies. Already, 60 per cent of the population has an Aadhaar number and, hopefully, it is only a matter of time that such things as LPG distribution and other welfare programmes become UID-driven. The reservations expressed by the Home Ministry about a full roll-out of Aadhaar have been thankfully overcome.

The reasons for this pragmatism are not far to seek. Through better targeting, Aadhaar-based transfers can reduce subsidies by about ₹50,000 crore (about 20 per cent of the overall subsidy bill) without hurting the poor and needy. Of this, the saving on LPG subsidy, which ran up a bill of over ₹46,000 crore last year, could be between ₹6,500 and ₹10,000 crore. The LPG savings will result from bogus consumers being weeded out, a cap on the subsidy amount (most LPG users are middle-class and above, anyway) and conservation efforts, leading to lower imports. It is estimated that a quarter of the LPG connections in Karnataka and a fifth in Andhra Pradesh are bogus. The first round of DBT brought down the diversion of subsidised cylinders for commercial purposes: subsidised cylinders accounted for about three-fourth of total LPG usage last year, against four-fifths in 2011-12.

However, this is only the beginning. It is necessary to promote the shift away from inefficient cooking fuels such as firewood to LPG in rural areas. To this end, the subsidy should be gradually diverted from the well-to-do sections, who account for at least 60 per cent of all LPG users. The Jan Dhan scheme and post office network can come in handy. Above all, it is necessary to have foolproof systems. Consumers’ reservations over sharing their bank account number with their distributors — pointed out by the Dhande committee report on LPG reforms this May — should be addressed. The stakeholders should come up with credible solutions. We cannot afford a second derailment of DBT.

Source: TheHinduBusinessLine

All you wanted to know about Shale Oil

In an unexpected stroke of good luck for you, me and the country, the price of crude oil has fallen from $115 a barrel in June all the way down to $84. This has meant cheaper petrol and diesel, and a lower subsidy bill for the Government. One big factor responsible for this price fall is the unexpected increase in oil produced from shale in the US.

What is it?

Shale oil is essentially crude oil but an unconventional one at that. While the conventional fuel is usually found in porous rocks such as sandstone, shale oil is trapped in shale rock formations that are not easily permeable and hence is tougher to tap. So though its existence has been known for long, shale oil wasn’t being extracted in large quantities.

But technological advancements — horizontal drilling and fracturing (fracking) — introduced and honed since the early part of the century have enabled shale oil exploration and production on an industrial scale.

Most of the action in shale oil so far has been in the US where explorers have struck copious quantities of the black gold. It has not been smooth sailing though. Environmentalists and local communities have been up in arms against the pollution caused to land and water bodies by the chemicals used in the fracking process.

Nevertheless, shale oil produced in the country has grown by leaps and bounds over the years. So the dependence of the US — the largest oil consumer in the world — on imported crude oil has fallen sharply. And this has added to the weakness of global crude oil price in recent months.

Conventional crude oil producers such as Saudi Arabia have been cutting prices to maintain their market share and to drive some of the high cost shale oil producers out of action.

But whether this will have the desired effect remains to be seen — technological improvements are expected to push down the cost of shale oil production.

Also, while Saudi Arabia might have the financial muscle to sustain low prices for quite some time, other conventional producers such as Venezuela and Nigeria may likely find it difficult to hold out.

Why is it important?

Shale oil has the potential to be a massive game-changer in global energy supply and pricing — with enormous geopolitical implications. It’s not just the US; countries such as Russia, China and Argentina are also believed to have vast stores of shale oil. India too is taking baby steps to find and explore its shale assets potential.

Progress in other nations has been quite slow so far. But there’s no saying when the inflection point will be reached. If production continues to expand, countries such as the US could start exporting oil in a few years.

Why should I care?

For starters, more shale oil means lower petrol and diesel prices. So you spend less on travel.

Cheaper crude oil also reduces India’s current account deficit and subsidy bill and will also give a boost to the country’s GDP — that means more and better-paying jobs, and more profitable businesses. But shale oil production in India in the future could also mean more environmental challenges. So the right trade-off needs to be made.

Source: BusinessLine

Structural imbalance in Indian economy

         As per a newspaper report, India is poised to become a $2 trillion economy by FY15 even if it grows at 5%. The growth rate for Q1 FY15 has been 5.7% and the RBI estimated growth rate for FY15 is 5.5%. So we can be sure of crossing this milestone by March 2015. Psychologically, it is an important milestone to cross. However, if your dive into the numbers then you will find that the per capita income has not increased drastically. If you look at the chart below, several imbalances can be found in our economy. 

Although 50% of our population depends on agriculture, the share of agriculture is a meagre 18%. Services contribute a lot to our GDP, a whopping 50%. When Modi was the CM of Gujarat, he had trifurcated the economic structure on 3 pillars namely, Agriculture(33%), Services(33%) and Manufacturing(33%). The same model needs to be replicated at national level. Given the kind of human capital we have, liberalising the labour reforms, land acquisition and environment laws together can help the government raise the GDP by 2% in 3 years. All of these coupled with financial sector reforms, GST, augmented infrastructure capacity in terms in roads,freight corridors and ports can further help the government raise the GDP by 2%. The point I am trying to make is, focusing on the sectors which involve heavy manufacturing activities can help the government spread the base of the economy. For eg. there are about 15 cities where Metro rail projects are in several phases of execution. Currently, the tracts, via ducts, pre cast cement blocks, signalling system equipments and finally the trains, all are imported. Why can't we set a standard for all the trains, signalling system, pre cast ducts and indigenously produce them in our country? This will help in saving our import bill and simultaneously increase the manufacturing activity. Every job created in manufacturing sector creates 5 more direct and indirect jobs.Service sector is such a sector which can be sandwiched between Agriculture and Manufacturing, for both these sectors required IT support, marketing,advertisement and other allied activities. In next 3 years, the government needs to focus on labour liberalization and execution of those liberalized reforms coupled with financial sector reforms. This process will be excruciatingly painful and give a lot of labour pains, but in the end it will deliver a beautiful baby... 

Image Source: Livemint

Interlinking rivers in India

The articles which I am sharing are part of my Political and Economic thinking. I came across an article in The Hindu Business-line, the news paper which I follow exclusively for policy making literature.

_________________________________________________________

“Atalji's dream of linking rivers is our dream as well. This can strengthen the efforts of our hardworking farmers,” tweeted Narendra Modi soon after an election campaign speech in Bihar in April.

The river linking project, which the National Water Development Agency (NWDA) calls inter-basin transfer of water, is designed to ease water shortages in western and southern India, while mitigating the impact of recurrent floods in the eastern parts of the Ganga basin.

“One of the most effective ways to increase the irrigation potential to improve foodgrain production, mitigate floods and droughts and reduce regional imbalances in the availability of water is the Inter Basin Water Transfer from surplus rivers to deficit areas. The Brahmaputra and the Ganga, particularly their northern tributaries; the Mahanadi, the Godavari, and the west-flowing rivers originating from the Western Ghats are found to be surplus in water resources,” NWDA says on its Website.

At its completion, the country will have 30 river links, 3,000 storage structures, a canal network stretching almost 15,000 km and can generate 34 GW of hydroelectric power, create some 87 million acres of irrigated land, and transfer 174 trillion litres of water a year. The initial cost of the project is estimated to be at ₹5.6 lakh crore, while around 580,000 people face the threat of displacement.

The plan

Under the National Perspective Plan (NPP) prepared by the Ministry of Water Resources, the NWDA has identified 14 links under the Himalayan Component and 16 links under the Peninsular Rivers Component. Out of these, feasibility reports for 14 links under the Peninsular Component and two links under the Himalayan Component have been prepared.

According to the NPP, the Himalayan Rivers Development Project envisages construction of storage reservoirs on the main Ganga and the Brahmaputra and their principal tributaries in India and Nepal, along with an inter-linking canal system to transfer surplus flow of the eastern tributaries of the Ganga to the West. It will also link the main Brahmaputra with the Ganga.

The Peninsular Rivers Development Component is divided into four major parts: interlinking of Mahanadi-Godavari-Krishna-Cauvery rivers and building storages at potential sites in these basins, interlinking West-flowing rivers north of Mumbai and south of the Tapi, interlinking of Ken-Chambal, and diversion of other West-flowing rivers. 

Bringing States on board

To implement the project successfully, the Government will have to convince States to come on board, as water is a State subject.

Andhra Pradesh, Chhattisgarh, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Odisha, Puducherry, Rajasthan, Tamil Nadu and Uttar Pradesh are the major States to benefit from the project. Several States have supported the plan, while some others have raised concerns. Chief Ministers of both Andhra Pradesh and Tamil Nadu have been urging the Centre to take up the 14 links under the peninsular component. Kerala, however, is worried about the proposed Pamba-Achankovil-Vaippar link.

The first steps

One of the initial tasks before the Government is to address the Supreme Court verdict of February 2014 on the interlinking of rivers. The court had directed the Government to create an appropriate body to plan, construct, and implement the massive project, starting with the Ken-Betwa link.

The two phases of the Ken-Betwa link project, involving Madhya Pradesh and Uttar Pradesh, are estimated to cost ₹11,676 crore. A detailed project report for both the phases has been submitted to the two State Governments. According to this report, a total of 11,723 ha of land could be submerged if this project is executed. This includes more than 5,000 ha of forest land belonging to the Panna Tiger Reserve. It will also affect 10,163 people belonging to 2,529 families in 22 villages.

“Together, both the phases of the Ken-Betwa Link project envisage 7.35 lakh ha of irrigation, 78 MW of hydropower and would provide drinking water to 15.07 lakh people,” said S Masood Husain, Director-General, NWDA. Other priority links are Parbati-Kalisindh-Chambal, Damanganga-Pinjal, Par-Tapi-Narmada, and Godavari (Polavaram)-Krishna (Vijayawada).

Of these, the detailed report for the Damanganga-Pinjal link is ready with the Centre. The report has already been submitted to the Governments of Maharashtra and Gujarat. “If implemented, this project can address Mumbai’s water problem to a great extent at least till 2040,” Husain added.

The downside to linking

However, the projects have already invited criticism from various political parties. In fact, those who were evicted for the construction of the Bhakra and the Pong dams, two of the oldest in India, have still not been fully rehabilitated.

“Environmentalists, hydrologists and economists around the world have expressed deep concerns at the irreversible damage that this sort of a mega project can do to the country’s environment and our water resources. Massive civil works will be involved, lakhs of people will be uprooted and vast sums of money will be required,” Congress leader and MP Karan Singh said.

The CPI (M) has also questioned the move. The party’s MP KN Balagopal said the Central Government’s plan is politically-motivated, giving the example of theParambikkulam-Aliayar project (in Kerala).” Farmers of Palakkad district have to hold protests during the crop season to get water from the project released. The proposed Pamba-Achankovil-Vaippar link will be a disaster for a riparian zone like Kerala, he says.

Failed attempts

The Government defends the project, saying the idea of river-linking is not new in India. In 1972, then Union Irrigation Minister KL Rao mooted the first major proposal to interlink the water basins. The 2,640-km-long Ganga-Cauvery link was the main component in the proposal. But Rao’s estimate of ₹12,500 crore was considered “grossly under-estimated and economically prohibitive.” In 1977, during the Moraji Desai Government, Captain Dinshaw J Dastur, an engineer, proposed the construction of two canals – the first for the Himalayan rivers and the second to cover the central and southern parts. A host of experts opined that his project was infeasible.

However, both the Government and the NWDA are now confident of implementing the project at the national level. The NWDA lists a number of initiatives such as the Periyar Project, the Parambikulam-Aliyar, Kurnool-Cudappah Canal, the Telugu Ganga Project, and the Ravi-Beas-Sutlej-Indira Gandhi Nahar Project as examples of successful execution of river linking.

“If we can build storage reservoirs on these (surplus) rivers and connect them to other parts of the country, regional imbalances could be reduced significantly and lot of benefits by way of additional irrigation, domestic and industrial water supply, hydropower generation, and navigational facilities would accrue,” it adds.