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INNOVATIVE FINANCING FOR INFRA IS A MUST

By G. Srinivasan

The Modi Government is overly obsessed head over heels with economic reforms  so much so that even before the results of the Maharashtra and Haryana Assembly elections were out, it announced the decontrol of diesel price and a higher price for natural gas. These are the boldest reform strokes the stakeholders had been crying for that hold out the desirably salutary and intended impact of reducing the government’s growing but unsustainable oil subsidy bill, besides enabling the upstream oil and gas producers to redeploy proceeds for beefing up their operations. In contrast to the charge that its maiden budget lacked any innovative ideas or a substantive roadmap for reform to get going to overcome the inertia of governance and reform-fatigue grievously suffered by the previous dispensation under the United Progressive Alliance (UPA), the National Democratic Alliance (NDA) has suddenly become hyper-active on policy fronts to kick-start the growth process.

 

In a raft of reform initiatives to disabuse of any policy apathy by critics, the government unveiled steps to reverse the cancellation of  coal blocks in the wake of the apex Court order, besides paving the way for private companies to sell coal, helping to jolt the monopoly of the mafia-ridden  and the world’s biggest mining giants, Coal India. Processes are also under way to sell a 5 per cent stake in Oil and Natural Gas Corporation (ONGC) to glean as much as three billion dollars to help cut this year’s fiscal deficit to the targeted level of 4.1 per cent of GDP. The government is also preparing the ground to scrap nearly 300 outdated laws that make doing business in India an intractable proposition. Already, the Modi Government has enhanced the foreign investment caps to 49 per cent from 26 per cent in defence, besides instituting measures for public-private partnerships to build more roads, railway and other bedrock infrastructure.

 

The baby steps on the labour front to help ease the grip that inspectors hold on factories are no doubt welcome  but they are still far away from easing hiring and firing of workers which most of the industry had sought from the authorities. Considering the molly- coddling of workers in the organized industries, it is time the authorities toyed with the idea of effecting some incremental changes and flexibility in labour laws so that the uncovered and unorganized workers get a chance for gainful occupation even as this makes the extant labour force a bit disciplined and orderly. If only the authorities act with tact on this front, the need for welfare-ridden schemes like the National Rural Employment Guarantee would not arise at all as it is only work and not welfare a majority of self-respecting Indians seek to keep themselves comfortable with or to keep the wolf from the door.

 

The Prime Minister’s Make in India strategy is well-timed to tap the demographic dividend and crank up manufacturing activity in the economy by imparting skill development and technical knowledge to semi- skilled swath of labour populace.  It needs to be noted that India’s extant working-age population of 800 million is analogous to what China’s in 1993.  India’s labour pool will increase by 200 million by 2035, matching the demographic dividend that the Middle Kingdom enjoyed consistently for over two decades that propelled its industrial and manufacturing might to capture global footprint for its variegated industrial products. For India to traverse on similar tacks like what China rode in the past several years, it needs to put in place both software of transactional facilitation laws and the hardware of basic infrastructure that ensures that investors take active interest to invest in India and stay invested on a sustainable scale. In software front, issues like contract enforcement, bankruptcy code and flexible labour laws need to be fast-tracked if there is any tangible improvement on the ground for the economy to benefit by.

 

On the infrastructure front, it is germane to recall the weighty words of the Financial Counselor of the International Monetary Fund (IMF) Mr. Jose Vinals who bemoaned that the policy-makers the world over are confronting a new global imbalance, “not enough economic risk-taking for growth, but increasing excesses in financial risk-taking posing stability challenges”. Though India’s financial stability was seldom seen jolted like what the western economies underwent in 2007-08, the existing banking system is not comfortable in extending long-term finance for infrastructure projects. The limited exposure the banks had in this area got both their flanks and front exposed, adding to solvency concerns and pushing up their leverage ratios to risky levels.

 

If the Modi government is serious about ramping up infrastructure growth, it needs to think out-of-box in exploring a menu of options including a proposal for National Investment Fund (NIF). Though the NIF idea was mooted by the erstwhile UPA government, the funding pattern posed formidable problems. As budgetary constraints prevent the government from doling out its sparse resources to get them locked up in long gestation investment projects that bear fruit over a span of several years from concept to commissioning, the NDA government can marshal resources from the hefty disinvestment proceeds it plans to garner this year by sale of stakes from state-run enterprises.

 

For India to become a hub for global manufacturing, the hardware of basic infrastructure needs to be firmed up and firmed up strongly to sustain investors’ interest in staying invested in manufacturing activities here. What is the purpose of investing in India to make it a universally acclaimed global manufacturing hub, when its extant infrastructure such as roads, railways and ports continue to be antediluvian and rickety that cannot even cater to the needs of the domestic economy and users in any worthwhile manner?

 

Though economic reforms had been ushered in India two decades ago, the fruits of reform remain bitter in the absence of a working or serviceable infrastructure that accords comfort to users, both individuals and industries. Barring overwhelming response to telecom revolution,  a few milestones in the construction of national highways and a few modern ports, the record on this score remains a sorry tale of missed opportunities, wasted resources and policy-laden aberrations that effectively ended the ambition of many a project proposer to scale up and set up infrastructure that is akin to what China had done in the past several years to showcase its industrial might and trading techniques in the global market places.

 

Considering the immense amount of investment that is required to make up India’s pathetic and brittle state of infrastructure, the Modi Government must devise some unconventional measures other than letting mega projects rely on bank loans to provide alternative financing mechanism to infrastructure companies. This will definitely go some if not a long way to equip them to deliver projects on time with the users, both individual and industry, paying their way to make ample and beneficial use of the resultant world class infrastructure amenities in the overall interest of the Indian economy in the years to come. (IPA Service)

 

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