The month of April is all set to narrate Shahrukh Khan's famous dialogue, "don't under estimate the power of the common man". The 2019 General Election seems to be interesting on account of National Democratic Alliance's development agenda versus Grand Alliance Party's freebies agenda. At one point, where Prime Minister Narendra Modi is upbeat about skilling India; Rahul Gandhi would like to kill India [not literally but probably financially ] with his famous Nyuntam Aay Yojana (NYAY).
The current cover story is based on historical election data and how "populist" narratives can derail India's infrastructure funding. For instance, populist schemes like PM-KISAN targets 120 million of small and marginal farmers with a payment of Rs 6,000 a year. The scheme will cost India about 0.4 per cent of GDP. NYAY, targeting 50 millions of household (about 250 million people), and paying Rs 72,000 a year, would cost the country 2 per cent of GDP. Now the question is, does India really in need of such freebies, at the cost of investment cycle? To clear the air, the cover story seeks answers from India's top economists on how the government will fund its envisaged infrastructure dream post election, and manage the fiscal deficit at 3.4 per cent level. It will not be a cakewalk for the new government to balance both.
Moving on to India's blue eyed boy, IBC 2016 (Insolvency & Bankruptcy Code)is giving sleepless nights to the corporate sector. At the time, when the Indian economy was unshackled and opened up, it grew rapidly, throwing up huge opportunities, both in consumption and capital expenditure. Here, India's infrastructure, was given a boost, with new power plants and highways sprouting up almost at will.
With the Pandora's Box open, India witnessed promoters setting up businesses in industries though they lacked knowledge. Given their connections, they were also able to obtain funds for their projects from public and private banks. When the global meltdown in 2008 hit India, growth slackened considerably and the future projections went south. Suddenly, the banks were staring at a mountain of bad debt. While banks and NBFC's like ICICI and IL&FS "helped" roll over debt for "considerations" the charade could not hold on for much longer. This led to the well-chronicled NPA saga of various corporate banks, resulting in IBC legislation.
After, Naresh Goyal and his wife being jettisoned from Jet Airways' board, which was unheard off until recently, is a reality with many prominent industrialists set to lose control of their companies, either those they set up or those they inherited. However, Jet's rescue seems to be setting a wrong precedent. If all essential infrastructure services deserve to be "rescued", then are we going to see metro rail, airports, ports all seeking such rescue acts? Till 2011 the private sector contributed over 40% of the infrastructure spend in India but during the NDA regime, private sector has remained largely shy.
Another issue plaguing the sector has been the contracts. The contractors concerns are valid because if even EPC contracts are going to be modified by the erstwhile Planning Commission, then what's the point of having specified related authorities.
Consultants and developers are of the opinion that while our model concessionaire contracts for roads and highways have evolved over time, we do need to revert to the internationally accepted templates designed by the International Federation of Consulting Engineers (FIDIC). As international contractors are familiar with these contracts and are much more comfortable bidding on Indian projects. In fact, this would cut off project roadblocks which have shackled project executions.
We are already saddled with the promises made in the manifestos of the parties. This will now become payable by the commoners. So while the commons are electing their future leaders, the bureaucrats who essentially run the country need to re-engineer their tools and templates for although the burden of debt will rest on the commons, they need to manage the pain allocation.