Moses Harding, Chief Economist & Group CEO, Srei Infrastructure Finance, speaks on how the investor and entire stakeholder community is in a wait-and-watch mode to see the translation of their aspirations to reality.
What needs to be done in the infrastructure space to spur the growth in the manufacturing and infrastructure sectors?
It is obvious that a strong economic infrastructure backbone is a prerequisite to realise the "Make-in-India" manufacturing ambition. The end-to-end requirement varies from land acquisition for construction of facilities, availability of uninterrupted power supply, adequate road/port facilities for easy movement of raw materials and finished goods, labour reforms to ensure availability of adequate skilled & unskilled manpower workforce, transparent legal/tax related policies by removal of any kind of ambiguity and retrospective impact and all taken, creation of pro-business environment. It is all about creation of attractive opportunities for monies to be pulled in and put to work. The current issue is not related to availability of monies (domestic or foreign), but related to creation of opportunities and series of irritants across policy, regulatory and administrative bottlenecks. The present infrastructure availability across roads, power, ports etc., is highly inadequate to spur growth in the manufacturing and agriculture sectors. There is huge upside potential and the key to success is to build investor confidence in the system. There are signals from the Narendra Modi Government to remove related issues, while investors continue to stay in a wait-and-watch mode to the see the light at the end of the tunnel! There is a two-point agenda for the government now: first, to reactivate and infuse energy into "as-is-where-is" projects to get back the investor/lender’s confidence for optimum use of built-up capacity and second, to open up new opportunities to attract fresh liquidity to expand capacity. This will obviously lead to expansion of consumption and job creation.
The following are key initiatives to up-scale the infrastructure sector:
1. Revival of infrastructure projects that are stuck due to either cost over-run or for want of additional liquidity support
2. Support projects that are stuck due to regulatory and administrative bottlenecks that would lead to cost over-run
3. Remove revenue related issues and raw-material linkage irritants.
It is important to give comfort to investors and lenders that their monies will be put to effective use by timely completion of projects avoiding cost over-run without undue delay in realisation of projected revenues to ensure that investment is not put at risk. Investors and lenders monies are already stuck or do not generate minimum returns on capital; the need is to broad-base the investor/lender community and give adequate comfort to existing investors to enhance credit exposure.
What can be done to facilitate the ease of doing business in the country (for global players both at the Central and the State levels) as the dismal state of SEZs has put a major roadblock to the Indian growth story?
India is not in an enviable position in the ease of doing business ranking of the World Bank at 142 out of the 189 countries surveyed. It is important that India quickly climbs into the top 50 to attract large FDI investments from long term global investors who manage public monies. The efforts to ease of doing business in India begin from clearance, to implementation, to execution, to compliance with clarity on net returns and exit. Some of the most critical efforts are from the following:
1. Information technology to make governance more efficient with online, single window model for providing clearances and filing compliances to cut time, efforts and costs. Integration of services between the State and Central government machinery is essential to avoid duplication and multiplication of efforts
2. Clarity on ownership with transparency on tax and clarity on parameters that impact risk and reward
3. Ensure end-to-end process is smooth from infusion of capital to realisation of return on the investment and mode of repatriation of profit, which are clear upfront with no risk of change during the course.
The Modi government’s commitment on good and effective governance with intent to build skills, scale and speed has aroused global investor interest with the belief that this is the best time for India to deliver a pro-business environment, given the majority political mandate and decisive government. The consensus approach of the Central government with the State government will also lead to removal of friction between different ministries and governments.
Madhya Pradesh recently provided exemption from some labour laws for the micro, small and medium enterprises (MSME) sector. What more can be done to ease the conditions for doing business in the country for local players?
The MSME sector is very critical for India growth momentum and to upgrade the social well-being of the huge population in rural and semi-urban areas. This sector also covers most of the population in the lower end of the pyramid. MSME is also the sector which is scared of globalisation as risk of big players with deep pockets would make them insignificant. It is important for the State governments to establish business linkage between MSME and large companies to enable them to be partners rather than be looked as small competitors. The reform process for MSMEs should cover support to implementation of ideas, providing cost-efficient liquidity (equity and debt), ensuring availability of skilled manpower, business continuity through provision of uninterrupted power and efficient related infrastructure, and above all ring-fencing their economic interest against large players’ competitive advantage.
What are the primary issues that restrict the growth of the Indian players and industries in the country?
Business opportunities emerge from bridging the demand-supply (gap) in the system; when the demand is more, there exists need to expand supply capacity and it is important for the supply to look beyond India and go global. To support business/supply expansion (from demand pick-up), it would need finance (equity and debt) and efficient infrastructure from adequate availability of raw materials and getting out the finished product at competitive pricing. For this, Indian players have to be creative to beat the competition from the external world and be innovative to deliver superior and cost-effective products and services. India has emerged as major player in pharma, IT & allied services and consumption. The advantage of a very large upper-portion of the pyramid from middle class to super rich has paid dividends. But, India lags way behind in other critical sectors such as manufacturing and agriculture; future GDP growth has to come from here. The government focus on these sectors by upgrading the facilitating factors related to basic, social and economic infrastructure is a step in the right direction. The immediate agenda is to step up the GDP growth momentum over 5.5-7 per cent, and hopefully with improvement in the global arena, back into 9-10 per cent. This shift with combination of easily doing business will be the catalyst that would remove the restrictions and provide the necessary momentum for growth.
What are the concrete steps being taken by the government to help the Infrastructure sector grow?
The government has taken lots of macro-level initiatives to remove the issues relating to policy paralysis, regulatory bottlenecks and administrative irritants. Narendra Modi has assured the investor community that his government will create more opportunities for investment and make India a pro-business destination to global investors. The build-up of optimism from the rhetoric terms of "red-tape is off and red-carpet is on", "Make-in-India" and "financial inclusion" will lead to economic and social wellbeing if executed well, which in turn will open up investment opportunities. The government is seen committed to the two-point agenda of revival of infrastructure projects which are stuck for various reasons and to enlarge the scope to build scale for new opportunities. As of now, all these steps are a "work-in-progress" with policy initiation and execution guidelines. The investor and entire stakeholder community is in a wait-and-watch mode to see the translation of these aspirations into reality.
Are there any concrete steps being ignored by the government which would have helped the Infrastructure sector grow?
Lots of policy reforms and administrative actions need to be taken in the infrastructure sector and the new government has to quickly provide the necessary stimulus to the fledging sector. The need is end-to-end across power, transportation (roads, ports and railways), irrigation, oil & gas, and SEZs etc. Some of the measures in the power sector would cover reduction of debt burden of SEBs and facilitation of investments in power distribution, privatisation in the distribution system, measures to reduce the extent of cross-subsidisation, metering of electricity for all consumers to reduce slippage, allowing temporary coal linkage to plants which have not developed their allotted coal block, allow commercial coal mining, etc. The transportation sector needs a fillip from timely approval and clearance of projects, revision in the new land acquisition bills etc. The oil & gas industry requires clarity in fuel subsidy policies, market-linked pricing of fuels, policy on gas pooling etc. Policies relating to SEZs which are stuck over a decade need an entire re-look to make these viable for the investor and lender community. Some of the common features are speedy environmental clearance, relaxation in regulatory norms related to infrastructure financing, financial sector reforms for raising long term funds, reduction in administrative and bureaucratic delays, and timely release of funds from the Centre and State towards various programmes. It is obvious that the government and public sector entities have a critical role to play, which in turn will pull private participation. The strengths of both public and private sector players have to come together to revive infrastructure, seen as the first major step to put the animal spirits to work to push GDP growth momentum back to over 7 per cent.
Could you cite some global examples in the infrastructure sector (including ports, airports etc.,) that make those destinations far more preferred investment destinations and from which India could take a cue from?
There are lessons to learn from developed nations and emerging economies on how the infrastructure sector is being used to spur growth to attract domestic and foreign investments through public, private and PPP initiatives. India can also take lessons from China on how to build a modern economy which runs on reliable roads & rails, power & energy and telecommunications; large investments into roads, railways and ports have not only helped businesses to build end-to-end transportation of raw materials to finished goods but also provided efficient logistics to large middle class and affluent consumers. Among the best-watched endeavours are massive bridge projects providing better connectivity. The 50 km six-lane bridge linking China’s Guangdong province with Hong Kong and Macau will cut travel time from mainland China to Hong Kong from more than four hours to 40 minutes. Between 2001 to 2004, investment in rural roads in China grew by massive 51 per cent annually and in recent times the Chinese government has used substantial infrastructure spend to hedge against economic slowdown. Despite absence of a transparent democratic political environment, China has pulled in FDI to use the infrastructure sector to scale up its manufacturing and agriculture sectors. Given India’s similar geographic and demographic position with better political environment and governance, it is the right time for India to exhibit its execution capabilities to attract global attention from investors, lenders and manufacturers. The intent (and ambition) of the Narendra Modi government to bring about economic and social wellbeing simultaneously can be turned into reality only through walking the talk at good speed!
– Garima Pant