Vinayak Chatterjee gets down to the brasstacks on India's slow rate of infrastructure development, dismisses theories on the shortage of funding and recommends an overarching political authority for infrastructure.
Contrary to popular opinion, making infrastructure projects viable is not so difficult because public policy allows a vast array of interventions. We can make projects bankable by giving adjacent benefits-if a road is not viable attach some real estate to it. This is adjacency principal is applicable to the Hyderabad Metro, which is bundled with real estate.
Adjacency and differential pricing
Hyderabad Metro combines ticket sales with real estate, without which the private sector would lose beÂcause just ticket sales are not profitable. Real estate allows viability cash funding with a dose of free capital that brings down the cost. Differential pricing-pricing to match paying capacity, is a worthwhile alternative. It is the difference between business class and economy. In the electricity sector, industrial usage attracts highest tariffs while agricultural usage is almost free. Currently, bundling, land adjacency and viability are popular. And everybody knows that there is more money in chasing in a smaller number.
Busting a myth
I do not think that infrastructure faces financial conÂstraints. In fact, there is liquidity but hardly any projects-close to Rs 40 billion of private equity (PE) funds are in circulation of which almost Rs 20 billion is earmarked for infrastructure, and we have just one road project closed. Banks, LIC and SBI and IDFC are eager to give loans. Therefore, many arguments about fund shortage are theoÂretical. In infrastructure, governÂments decide on proÂject needs and the financing model. The problem is that the authorities lack creativity, energy and purpose.
Problems on top
Indians have the ability to rise to the opportunity-small operators in the 1990s have become listed BOT operators. So the private sector is not constrained. The 20 km a day didn't happen because NHAI has not offered it to the market or created conditions to achieve it; the problem goes back to the authority's functioning.
There are also inherent flaws because timelines are set when the private sector takes over at a time when it must begin removing obstacles and obtaining clearances. When NHAI gives out contracts with only 80 per cent road alignment in position. The balance 20 per cent creates problems and even 80 is not a contiguous stretch. Issues like this cause big delays.
Tying them up
We need a dedicated Infrastructure Ministry-one Central Government body that can take a holistic view of the sector, issues of long term finance, and tackle issÂues between central ministries, states and local bodies. This ministry must set clear targets for creating infrasÂtructure-direct the Power Ministry to announce four mega projects annually or ask the Shipping Ministry to add specific capacity. Target setting, dividing it into pubÂlic and private components and coordinating-cutting through the red tape-must be achieved at that level.
The Infrastructure Ministry can start by adopting 20 projects of national importance and remove all the barÂriers before handing them over to private players.
A ground rule for the Infrastructure Ministry must be to package projects with all clearances. The other model is to implement it on its way: the Mumbai-Pune Expressway is a brilliant example of this. This road was built by the Maharashtra Road Development Corporation (MSRDC), registered record time of construction, cleared of all the risks and then handed over to a private party-IRB. The government got a huge asset and earning, rather than selling it to a low private bid.
The author is Chairman, Feedback Infrastructure Services.