Growth with responsibility

Mahesh PS Gandhi explains the complexity in the state-private relationship in infrastructure development.

If growth is looked at as a number without relative comparison with the general life improvement of the common man, it remains an anomaly, an evasive terminology for showing an absolute report card with no real benefits accruing to the citizen. Improvement in the standard of living of people comes about only by accessing new infrastructure, whose advantages include reducing gaps in time, space, availability and utilisation of resources to enhance production and productivity across industrial, agri­cultural and services sectors.

Infrastructure development historically has been funded by the State – royalty, governments, and groups of such non-government organisations (NGOs) that are founded specifically for the purpose. Exceptions have been such historical instances like the very close to home-trading companies like the East India Company that have attempted to develop infrastructure in India to move their business into the interiors, whether through export of Indian spices and other goods of interest, or the import of English food, textiles and machinery.

A good example in the modern world is China’s substantial loans to emerging economies in exchange of their natural resources, and providing more business to Chinese construction companies and equipment suppliers. Another example could be the Japanese International Cooperation Agency (JICA), which advances largesse and loans again to such economies in exchange of similar benefits as in case of China.

The local comparison to this is clusters of industries that engage either on their own or with the local governments to develop social infrastructure in the regions, in the areas in which they have their businesses – either sourcing or supplies.

Profit from public good: While the aim of the government and the state is general good of the people in arranging development of infrastructure through this route, it is essential and important that the real costs of development of infrastructure either through the foreign government participation route, or the public-private partnership (PPP) route are assessed, evaluated, quantified and then also added to the total costs of the project. The projects must not be structured in such manner as would afford “unreasonable” profits for the private promoters or such foreign governments.

Today, infrastructure development capabilities are more accessible than before, and technology, capabilities and competence is available and is being developed. Therefore, there is, in effect, no reason for us to afford higher than long term borrowing cost of the government, being the allocated money for development of infra­structure, as all costs need to be borne by the same common citizen, and offset from his standard of living by virtue of applicable toll tax, additional state taxes, only because his government was not enterprising enough to build capabilities for development of infrastructure but was willing to ask for more from an individual household’s income reducing its consumption expenditure.

By the above argument, while lifestyle improvement will happen because of new infrastructure and there may be some real growth, rural areas of the country will continue to witness more exodus to the cities using the same infrastructure, enhancing the burden on the urban populace, negating the impact of development in that region. Also, if the costs of financing infrastructure were more usefully managed, there could be more and inclusive growth leading to overall improvement of the standard of living of the common man.

This is why I would like to propagate and promote the modified PPP model for development of infrastructure under which the states need to leverage upon capabilities, reduce cost of financing the projects by over 30-40 per cent (as compared to the now popular PPP model) and enhance revenues multifold.

The author is MD, AFII Corporate Advisors Pte Ltd, Singapore.