The stage is set for take-off. It´s time to execute

The quintessential suave bureaucrat, Sanjeev Kaushik, Deputy MD, IIFCL, tells Rouhan Sharma the policy framework and projects are in place to set up India´s infrastructure.

How much work has been done with the National Investment and Infrastructure Fund (NIIF) since your appointment as their advisors?
We have been working with them to put together the investment policy – what should be the objectives, focus, sectors, types of investments and things of that nature. All that has been finalised. We are in the process of drawing up a shortlist of the candidate projects across sectors that the first few investments of the NIIF can be targeted towards. NIIF now has Rs.500 crore in its corpus and another Rs.500 crore is expected in this financial year itself. Let´s say between Rs.500-1,000 crore is the available corpus immediately. Of course, they are asking for at least a billion dollars from the foreign investor who will also have a board seat.

The government corpus will be Rs.20,000 crore which will be 49 per cent of the overall pie and 51 per cent will be taken up by three-four big strategic foreign investors. That is the structure being planned. It will take the whole of this year or so. As far as IIFCL´s mandate is concerned, we have already progressed in the study and the detailed appraisal of one or two infrastructure projects, which we are now going to present in January to the board of NIIF, chaired by the Secretary, Department of Economic Affairs. The board will approve one or two projects for actual investment and they are also planning to announce formal tie-ups with two or three foreign investors because not only will they put corpus in the NIIF, there are also some sub-funds in the NIIF like renewable energy sub-fund, fund for stalled projects and the Indo-UK fund. They are formalising all of that and announcements are due soon.

What are the sectors you have identified for the initial investments?
The NIIF will look at the core list of infrastructure sectors as per the government-approved list. In the beginning, we are looking to make some marquee investments in key sectors, which are high-impact national level projects. To begin with, we are looking clearly at transportation, i.e., highways, expressways as well as railways, shipping and ports. Subsequently, we would like to go towards power and energy, which is the next big sector in infrastructure for us. For now, we are working on projects within the transportation space.

What are the concerns of the foreign investors with respect to India?
There is a global economic slowdown and a lot of volatility globally, not just in India. In fact, India is relatively better positioned as far as investment destinations go. However, the need for us is to attract more and more investment funds into the country. The problem really is that domestic investment has to improve because the question the investors keep asking is about the depth of our domestic demand, domestic supply of funds, development of the bond market and whether domestic investors are making investments in large infrastructure projects. The whole domestic environment has to revive and foreign investors will follow suit because then it becomes a deep and active market for them. They also ask about the pipeline of projects and how they are progressing, what are the kinds of returns and the commercial viability. Even at the NIIF, one of its overarching objectives is that these projects have to be commercially viable projects.

Will it not look at any other kinds of projects?
It will have to be commercial revenue with receivables which will go into servicing the investor returns. It´s not going to be funding pure government projects or pure stalled projects. It may look at a stalled project which has stalled because of some problem but one which has sufficiently advanced and with some hand-holding will be a viable project.

There is a gap between policy making and implementation today in India. How is this to be addressed if these projects are to succeed?
That is a key issue that we have to track and for a lot of the projects, it is the State Governments and the local district administration that are involved. We have taken a lot of steps as far as Central Government policies are concerned. The Kelkar Committee has come out with a lot of recommendations which, I think, in the medium to long term, will make this much more efficient.

One of the recommendations is risk allocation framework. The proper risk allocation is that the party who is in that business domain should be charged with bearing the risk. Why should a private developer acquire land and get clearances? If the government is best positioned to acquire land, then a project should not be bid out till the land is 80-85 per cent acquired. If something is progressing and gets stuck because of an issue beyond the control of the developer or promoter – where the policy has changed subsequently – then it´s not fair to penalise him or the project. Somebody has to arbitrate and identify the problem area. Those kinds of mechanisms have to be put in place. A lot of ground has been covered on aspects which will make implementation of the projects much more efficient.

What is that excites you about the developed markets that can be adapted here?
The single biggest thing that has brought me to IIFCL and excites me is when I look at institutions like the Brazilian National Development Bank that has a loan book of $400-500 billion. IIFCL´s loan book, in 10 years of its existence, stands at about $8-9 billion.

So, they are about 40-50 times our size. I am not comparing us with China. Chinese Development Bank is about 150 times of our size. Canada has a few quasi-government infra institutions, which, although may be government-backed, operate autonomously and they are doing a lot to promote PPP and projects in the country. UK has something called the Infra UK, which, even though set up by the UK Government, operates completely independently with professionals and sectoral experts. It is doing a tremendous job. What excites really is that once you recognise that there is a trillion dollars kind of shortfall and we have to rely on outside sources to meet it, then let not just one but several institutions bloom and give them the autonomy to leverage, tap investors and to invest. The second thing that excites me is that there is no alternative. In the US, when there was a $300 Transportation Infrastructure Bill which was being introduced by the US Transportation Secretary in the Congress, he was asked why he was so optimistic even though the Congress was opposing the Bill. He said, ´I am optimistic because there is no option. You have to look at hard decisions now. If we have so many times more freight to move and do not have ports deep enough, or roads, or rail networks, we will not be able to move it.´

So, if the most advanced country in the world is talking this language and is getting sleepless nights over infrastructure, where are we? We are a country with much more population than the US and the problems here are much greater. So, I don´t think there is an option and that is what excites me.

Do you think 2016 will be a transition year for infrastructure in India?
I think we have already transitioned. In the last two-three years, we have seen a slowdown and lack of investment. In the boom years, around 2007 onward, when there was a lot of investment flowing into PPP and infrastructure, that was the time when we could have set our house in order. We had the same issues announcing tenders, projects without land acquired or clearances in place. All these problems were being tackled in the last three-four years of slowdown. The government has taken a number of key reform measures in power, DISCOMs, transmission, railways, ports and other areas.

We are already seeing movement in roads with NHAI and the Roads Ministry. The Sagarmala Project is already off the anvil and will start getting implemented this year. Railways is going to make a number of announcements this year. Smart Cities is already in progress and should take off. The stage has been set for take-off. It´s time to execute.