The new Development Finance Institution (DFI) will be a fairly large entity that will play a key role in the Central Government’s strategy to facilitate the creation of a robust financing ecosystem for infrastructure projects in the country. Simultaneously, the government also remains committed to rolling out systemic interventions to ensure the necessary action on the proposed divestment and asset monetisationprogrammes, says Dr. TV Somanathan, Secretary Expenditure, Ministry of Finance, Government of India. Somanathan made these observations in an exclusive interaction with Pratap Padode, Editor-in-Chief, CONSTRUCTION WORLD and Dr. Shubhada Rao, Founder, QuantEco Research at the ‘InfraNirbhar Webinar Series’ curated by CONSTRUCTION WORLD and SWARAJYA.
Excerpts from the interview…
We have a 35 per cent increase in allocation for the National Infrastructure Pipeline (NIP). Nearly over Rs 21 trillion needed to be spent by 2021. Have we accounted for all of that within this increase or are we also looking at tapping other sources?
No, the government’s provision in the budget is not sufficient to completely account for what is required on a YoY basis. The total funding will consist of the centre, plus states, plus the private sector. This is broadly our proportion but, yes, more money will be required.
As there are funding-related challenges within state governments, how do you propose to resolve such constraints?
We’re also looking at ways of incentivising states to spend a larger proportion of their budget on capital. And we are mindful of the autonomy of the states. We constantly face these challenges of the differing demands from different commentators and, at times, the same commentator at different times. We are looking at what we can do that is appropriate. Although we do realise that something needs to be done about it, you will have to excuse me for not being specific about it at this stage.
Since we are also looking at attracting foreign capital via sovereign wealth funds, etc., it is critical to enhancing ratings to augment the access of these institutional investors. What can be done in that area?
Yes, and I think that the new DFI has credit enhancement as one of its areas of operation. We are willing to put some government money behind these initiatives. If you have a project that is low rated, then we can upgrade the rating with a little bit of sovereign help in terms of you know first losses, guarantees or some backup from either the Central or State Governments. The other way of doing this is by using an intermediary to channelise private funds into a higher-rated institution, which then makes some of its investments into lower-rated institutions. These are some of the ways that we would be working on it, with the DFI playing an important role in accomplishing our objectives.
The other area which has probably not been accounted for in the NIP is the unfinished, abandoned or stuck projects. Bearing this in mind, we could perhaps think of deploying a ‘Mission Director InfraNirbhar Projects’ along the lines of what was done previously. What is your view on this issue?
I think there are two kinds of stalled or stuck projects. For purely government projects, we have a system called the Pro-Active Governance and Timely Implementation (PRAGATI), which is overseen by the prime minister himself and has proved to be quite effective in starting projects that were stuck in the past. Then we also have projects that have a private element as well as a public interface. You are right in saying that there is certainly scope for better coordination from the government side if it also involves public agencies, state governments, environmental clearances and land acquisition. But we also have a lot of projects that don’t have much public interface. Such projects are mostly stuck in the National Company Law Tribunal (NCLT). As for a mission director, I think it can be helpful when the problem is largely on the government side. Like, for instance, a state government suddenly withdrawing from an infrastructure project. Such matters can be resolved through administrative support. But if you have a project that is stuck due to solvency issues, then it becomes more of a financial resolution where NCLT’s role comes into play.
If I were to showcase the newly created DFI how differently could I position it versus the previously created long-term institutions for the infrastructure sector like the India Infrastructure Finance Company Ltd (IIFCL)?
Firstly, DFI is going to be much bigger in size than IIFCL. So, I think, scale is one important dimension where it is going to be very different. Secondly, it is now part of a more integrated strategy as an institution that aspires to facilitate the creation of an infrastructure financing ecosystem in ways that the National Housing Bank (NHB) has done for the housing sector or National Bank for Agriculture and Rural Development (NABARD) has done for the agriculture sector.
Asset monetisation is going to play a very important part in revenue generation. But care would also need to be taken to bring credibility back into this programme. From our point of view, the divestment programme is more credible while asset monetisation appears somewhat difficult. Your comments?
I fully agree with you that asset monetisation is more difficult because pricing is much more transparent in disinvestment done through market-based share transactions. But the sale of lands or other assets doesn’t have that level of market price discovery. Besides, we have a history in our country of prosecuting public servants who sell public assets. So, public servants had to be mindful of that! However, we need to be also conscious of the changes in the law that have happened recently in the Prevention of Corruption Act, which in 2018 was amended to remove the section under which several honest public servants could be charged with corruption. What that old section had was that if your decision resulted in another person making some pecuniary gains without public interest then you as a public servant could be accused of corruption. Even though there was no element of personal gain or bribes! That section is not part of the statute book anymore.
You may note that the Union Budget speech referred to the creation of a new agency for disposing of government land that would be managed along the lines of a private sector entity. That is because we have understood those challenges that we are attempting the create a new institutional structure and a privately managed agency. That is the other way we are planning to tackle it. Lastly, I would like to state that the mere fact that we are acknowledging it is also important. We had not previously said privatise but we are saying it now. That reflects a very important change in thinking. You may say that you are waiting for action. Well, we intend to act!
-PRATAP PADODE & DR. SHUBHADA RAO