Stimulus package: Focus on infrastructure

The battle-cry in the infrastructure sector is now about implementation. The bugles are sounding for efficiency of project delivery in the public sphere and about creation of bankable projects in the private sphere. Both have to ultimately do with governance and management in the public system. And this is clearly the Achilles's heel of infrastructure.

In the excitement of roping in the private sector, it is often forgotten that structuring 'biddable,' (and finally 'bankable') projects is the responsibility of the sovereign. The private sector can only respond to bids.

The first and second stimulus packages (December '08 plus January '09) have tried to squeeze the monetary and fiscal lemons, and delivered some juice as below:

(i) refinancing through IIFCOL worth Rs 40,000 crore (Rs 400 billion);

(ii) a gradually softening interest rate-cum-liquidity regime;

(iii) ECB access for NBFCs lending to core sector, and integrated township developers;

(iv) interest sops for low-cost housing;

(v) recapitalisation of PSU Banks by Rs 20,000 crore (Rs 200 billion);

(vi) an SPV to provide around

Rs 25,000 crore (Rs 250 billion) in liquidity support against investment-grade paper of NBFCs -- many operating in the infrastructure space.

It is expected that the combined effect of all the above could well be around Rs 100,000 crore (Rs 1,000 billion) worth of financial fillip to the infrastructure sector for the next 12-18 months. Fiscal capacity is now fully stretched. Moreover, there is no chance of any fresh fiscal concessions till autumn 2009.

So, it is time to rattle sabres on the long-overdue issues regarding implementation. There is general agreement now that the current effective constraint in infrastructure development is not money. Mahatma Gandhi famously said, 'Find purpose, means will follow.'

In his column in Business Standard on January 3, 2009, T N Ninan raised this issue: 'Why it won't work?' -- he then drew a link between corruption and poor governance, and indeed the slow paralysis of government. For the infrastructure sector, it is well-recognised now that the price for keeping a coalition together has been far too high.

Also monetary and fiscal interventions are the proud handiwork of economists and financial experts. Just as companies cannot be run only by the planning and finance departments, neither can the nation be run only by policy czars, monetarists, fiscal interventionists and economists.

We need managers and operational accountability. Unfortunately, for a country the size of India, only one infrastructure manager's name keeps cropping up, viz E Sreedharan of the Delhi Metro. While the nation rightfully salutes him, is it not the task of our leadership to identify and empower 100 Sreedharans?

So, if the third stimulus is to be about implementation, here are nine suggestions:

The Government of India should immediately set up a National Infrastructure Facilitation and Monitoring Agency. Such a high-powered body, along the lines of FIPB in the '90s, is sorely needed. Too many large and important infrastructure projects are behind schedule. It should also cut through problems bedevilling PPP projects. It should adopt 20 projects of national importance from different sectors and ensure timely implementation. NIFMA itself can be an innovative public-private partnership with the best of talent from the private sector twinned with the brightest and the best from public services. It should provide quarterly updates to the nation on real progress.

A new architecture for Independent Regulatory Authorities for infrastructure is way overdue. On August 24, 2004, soon after the UPA government was sworn in, the prime minister announced a slew of measures including 'revamping the regulatory framework.' In August 2006, the Planning Commission came out with its own consultation paper titled 'Approach to Regulation: Issues and Options.' It argued for an Act of Parliament laying down the overarching principles of regulation cutting across different sectors.

Eighty per cent of infrastructure is still going to be built by the public sector. There are genuine apprehensions about the capacity of this system to convert fiscal dispensations into real-time projects. Most existing public sector organisations have either been emasculated or remain somnolent. Surprisingly, also, no new capacities have been created in the recent past. NHAI and the Delhi Metro were created in the '90s. NTPC and BHEL were created decades ago. Aggressive PSUs, including joint sector SPVs, need to be established to get going in areas like Dedicated Freight Corridors, rural infrastructure, logistics, inland waterways, low-cost housing, power distribution etc. New-generation Sreedharans need to be given comprehensive charge to 'make things happen.'

The act of creation of bankable projects for PPP, and identifying and structuring projects for public expenditure, is a separate specialised task. The system in place for law and order, revenue and general administration is incapable of this delivery. In all state capitals, empowered entities along the lines of PIDB in Punjab, need to be mandated to deliver.

Land Bank Corporations need to be set up to tackle the vexed issue of land acquisition for economic development. A detailed piece on this was written in Infratalk in Business Standard on November 17, 2008.

A slew of Domestic Economic Zones can be straightaway considered for implementation, with possibly similar incentive structures as made available to developers of SEZs.

The PPP movement needs to be extended immediately to rural infrastructure -- notably irrigation, rural roads, cold chains and modern mandis. The appropriate model here will be annuity, not BOT.

PPP in urban services is crying for attention. There is no reason why ULBs cannot hand over urban services (in an annuity-cum-upside model, based on meeting agreed service delivery standards) to the private sector.

A 1992 change in the Constitution of India, called the 74th amendment, set the stage for a new governance structure for Indian towns and cities. This path-breaking effort has not seen devolution of real powers from state capitals to urban bodies. Implementation of the 74th amendment is the only clear way to halt urban degeneration.

Reproduced below is the extract of a Business Standard interview with the deputy chairman of the Planning Commission on January 10, 2009:

You talked of $500 billion investment in infrastructure during this Plan. It does not look likely to happen.

Probably. But let me put it this way. When have we reached 100 per cent of a Plan target? The purpose of $500 billion was to define the scale of the effort. We have succeeded in putting infrastructure on the agenda.

Now that infrastructure is firmly on the agenda, we can perhaps collectively prioritise its implementation.

The author is the chairman of Feedback Ventures. He is also the chairman of CII's National Council on Infrastructure. The views expressed here are personal.

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