The Idea of India, the Beauty of Desire and the Revival of Dream
Deep down in the heart of every Indian there is a romantic desire to see India as a peaceful, prosperous and harmonious nation (aka a superpower). Given the kind of all possible sorts of diversity in terms of region, religion, language, caste and what not; the possibility of such a thing happening from a realist’s perspective seems remote. But you need romantics to dream the grandest and most romantically impossible of dreams and strive for it. Such is the beauty of this desire that we have been able to belie worst estimates of what we could not collectively have achieved. In the last more than 60 years of our democratic and secular existence since independence, we may have faltered but never did we flinch in our beautiful desire to see India as a peaceful, prosperous and harmonious nation based on justice – social, economic and political.
Human DNA is nothing but the desire, to grow to do better, etched on those biochemical spirals. Given the right kind of environment, the possibility of all human beings to realize their true potential remains much higher. And infrastructure is one such enabling feature that allows people to leapfrog towards their aspirations. Looked differently, provision of appropriate infrastructure itself is embodiment of justice – social, economic and political.
Last year, around this time only, the central government constituted a high-level committee to make recommendations relating to policy initiatives that would enable the flow of an estimated $1 trillion investment in infrastructure sector during the Twelfth Five-Year Plan. That panel had submitted its interim report. In its various recommendations, the most important point advanced was that in order to accelerate investment, the government would need to create an enabling environment. And unless such enabling environment is created on an urgent basis, then in the absence of such measures, not only will future investments be constrained even the existing investments may be at risk in some cases.
But like everything else, things also have their own dynamics, irrespective of the best intents. So, despite best efforts of the government creating an enabling environment in a policy-paralysis scenario, it was no mean task. The result: The souring of the trillion-dollar infrastructure dream.
But before getting into the nitty gritty of the souring of this dream, it will be worthwhile to first have a grasp on the basics of the dream.
The quality and quantity of Transport Infrastructure: Roads & Bridges, Railways, Ports, Airports; Electricity; and Telecom; Storage infrastructure and Oil & Gas Pipelines largely constitute the infrastructure sector.
As per the Committee, fast economic growth of the economy in recent years has placed increasing stress on physical infrastructure such as electricity, railways, roads, ports, airports, irrigation, water supply and sanitation, all of which already suffer from a substantial deficit in terms of capacities as well as efficiencies. The pattern of inclusive growth averaging 9 per cent per year can be achieved only if this infrastructure deficit is overcome and adequate investment takes place to support higher growth and an improved quality of life for both urban and rural communities.
Seeing the significant growth of the share of private investment in the total investment in infrastructure from 22 per cent in the Tenth Plan to 38 per cent in the Eleventh Plan and the Twelfth Plan projections pegged it at 48 per cent. But various execution bottlenecks need to be addressed in order to revive the private sector confidence and investments.
In May 2013, while estimating the troubles of the construction industry, and given its close connection with the infrastructure sector, ICRA Limited, an Indian independent and professional investment information and credit rating agency, in a report presented the complex matrix within which the majority of the troubles are brewing.
The principal constituents of the report included: Continued weak Investment Capital expenditure by the private sector due to slowdown in economic growth; role of regulatory uncertainties in keeping the order book largely stagnant; delays in land acquisition and obtaining clearances remained the biggest of execution challenges; sluggish execution and rising wages leading to lower fixed cost absorption and pressure on operating profit margins; elongation in working capital cycle driven by delays in work certification and billings and in realizing receivables coupled with the need to extend greater support to sub-contractors.
As per ICRA, all these factors are causing weak cash flows from core construction business. As there is a fall in operating profitability, inability to grow order book, lower mobilization advances and finally longer cash conversion cycle.
Further the executive summary of the report maintained that weak cash flows coupled with other troubles has resulted in an increase in debt levels and dented net profit margins on account of increased interest costs.
So identified bottlenecks for infrastructure projects issues in land acquisition; in obtaining regulatory clearances and approvals from multiple agencies/government bodies; and lack of funding-tie ups. Besides PPP Projects in troubles also continue to remain troubled due to weaker-than-projected performance of many operational PPP projects has led to increased due diligence by lenders, hence delays in achieving financial closure for PPP projects; strong demand to renegotiate PPP agreements: Aggressive bidding done by the developers in the recent project awards.
Given the serious troubles with the project clearance process, last year the idea of Cabinet Committee on Investments (‘CCI’), was given shape (albeit the committee was notified in January 2013). The latest report is that CCI has been able to clear 92 major investment projects worth around Rs 3.5 lakh crore, which is about 4 per cent of India’s gross domestic product.
In its Policy Watch report published in July 2013, the Confederation of Indian Industries (CII) sought amongst various things from the government and for which it may continue to engage government in serious dialogue. The critical issues, amongst others, which beg to be addressed by the government in CII’s views are as follows:
Set up Independent PPP Commission to renegotiate PPPs.
Awarding projects to private sector only after securing key sovereign clearances.
Allowing professional O&M operators to take care of assets through specially created business trusts. The underlying ownership will get accumulated in such trusts whose units may get subscribed by the investors.
Sector specific regulators independent of political and bureaucratic interference including.
Government to push PPP disputes resolution bill in winter session. The Planning Commission has finalized The Public Contracts (Settlement Of Disputes) Bill 2013 and submitted it to the Prime Minister’s office.
The strong need to reform the processes if the dream needs to be revived amongst other suggestions if following recommendations of the Deepak Parekh Committee report are adopted, then the chances of revival of the sector are much higher. And sooner the better.
Reforms needed to mobilize Private
Capital include: Sustainable pricing of commodities and services, especially energy, would be necessary; Reinforcing PPP framework particularly in sectors like Railways which have been slow to reform; Privatisation and disinvestment would also be necessary for substituting state-owned monopolies by competing entities.
Dealing with execution bottlenecks: Overarching impediments such as delays in land acquisition and environmental clearances (the passage of new land acquisition law and the performance of CCI in this regard has largely addressed and is likely to address such troubles); and finally Taxation/GAAR related issues and Regulatory uncertainties which also seem to have been addressed or are in the process of being addressed.
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