Action: Bric by bric

The Cabinet Committee on Investment is moving steadily in the direction of unwinding gridlocks. After the last meeting this month with banks P Chidambaram has initiated them to highlight the funded projects which are stuck due to clearances. The banks have moved with alacrity and their first such meeting took place in Bangalore hosted by Canara Bank. Finance Ministry estimates show that there are 215 projects, each with a project size of Rs 250 crore and above (totalling over Rs 7 lakh crore), that are stalled. Out of the 215 projects, 106 are in the power sector, 79 in roads, 20 in iron and steel, and 5 each in cement and port sectors. These projects had been supported by public sector banks, and had disbursed Rs 54,000 crore by end December last year.

World trade has dictated growth swings like never before: Brazil’s GDP growth swung from -0.33 per cent in 2009 to 7.53 per cent in 2010 and 0.9 per cent in 2011-12; India’s later downward trend from 9.6 per cent in 2010 to 5.18 per cent last year is a clarion call for a boost to infrastructure, both publicly and privately invested. The government needs to spend more on infrastructure, while leaving no stone unturned in spotting and catalysing finance opportunities. In an environment of learning, private players have become wary of the price they have to pay from delays and uncontrollable, and so the days of its excessive dependence on PPP may be over.

The infrastructure sector in India needs to reinvent itself, failing which it will perpetuate what it’s triggered last year-an economic slowdown. While the global economy shall continue to be the sandbag and the official alibi, India’s finance minister is surely not blind to taking real action to curb the slide. The somewhat overstated caution amongst investors mirrors both a mutual-mimic act as well as a burnt-child syndrome. In the face of the cacophony of our alarmist electronic media and a snowballing social-media-triggered social critique, the government needs a better mechanism to rally around investors. Creating even softer infrastructure-for cash transfer and UIDAI, for example-is imperative for both overall economic growth and micro-level social development, so investing heavily in, say, telecom infrastructure, will become the backbone for development.

That’s why the BRICS bank proposal couldn’t have come at a better time. Although it was proposed by India in the BRICS meeting in New Delhi in March 2012, it took a back seat because countries couldn’t agree how the corpus would be funded. While World Bank and even ADB, to a large extent, have focused their disbursals on the social sector, multilateral banks need to continue seeing the close linkages between infrastructure and social development. Not doing so will precipitate World Bank’s and ADB’s experience of low disbursals. Notwithstanding World Bank Group President Jim Yong Kim’s encouraging statement to the Uttar Pradesh media recently that the Bank’s experience in India has been "positive", corruption and suspect documentation are easily prime reasons for relatively low disbursals from multilateral banks in India. The proposed BRICS bank has the potential to change that.

It’s more a cause for relief than celebration that the bank proposes to focus on infrastructure funding. The sticking point this year, too, will be the corpus needed-$10 billion for each nation. Given the veto power it would buy, China would gladly pay Brazil and South Africa’s share, and India is understandably shaking its head at the enormity of the amount. While 65 per cent of the Africa Development Bank’s $5 billion investment is already in infrastructure, South Africa is finding the BRICS bank a suitable alternative given the still-low infrastructure levels it needs to grapple with.

Second, there seems to be undue optimism that these will be high-return stakes. India’s own experience has been quite the opposite, and with good rationale. Despite all the blame game about government delays, low returns form a major reason why returning investors have become more reluctant to chip in.

The bank is in India’s interest like never before, and it must use its lobbying power with Russia and South Africa to kickstart it sooner than later. Optimism-and other investors-will follow.