Towards infra reform for industrial enablement

Sir M Visweswaraiah, considered the architect of Karnataka, famously said: Industrialise or perish. At that time, the state was the first to generate electricity and a first in many other developmental respects. Since then, the state has lost much of its glory, thanks to politics and lack of communication of a vision. Despite its leadership in the newer sectors, Karnataka has lagged in its implementation of physical infrastructure policies. Shashidhar Nanjundaiah writes.

Karnataka has recently drafted an Infrastructure Policy on the basis of the Karnataka Infrastructure Bill 2013. This is revised from the state’s 1997 and 2007 infrastructure policy documents. Among other things, the Policy prominently recognises the need for user charges. In an environment that was set in motion in 1991, this is one of the most important fundamentals to commit to. It "recognises that in a system where pricing of services is not economically sustainable, users would have no incentive to economise on their use of resources, and service providers would have no incentive to become more efficient".

Although the draft policy rationalises the inculcation of the provider-charges and the user-pays principles as fundamental to the success of PPPs, the Indian economy has been moving more and more away from the subsidy raj, so this reform is important to meet the objectives:

• Create a stable and dedicated financial source for construction/redevelopment/rehabilitation/replacement of project assets and their ongoing operations and maintenance in order to provide efficient, sustainable and high quality services at affordable prices to users.
• Manage demand
• Cover costs of service provision
• Recognise that economically weaker sections may require certain subsidies in user charges, provide explicitly for such subsidies to the project, to ensure that the project remains economically viable.

Per the last objective, receivers of subsidy should now be distinguished from non-receivers. In the near future era of UID, a policy that makes that distinction will be most relevant. The levy of user charges, the policy says, would be based on one or more of the following criteria:

• Savings to users
• Willingness to pay
• Need for explicit subsidies
• Uniformity between various projects
• Cost recovery
• Debt service & equity returns

Widening the scope of this policy beyond PPP has the economic advantage of moving irreversibly towards service reform, a need of future infrastructure. In its wisdom, the Delhi government has recently reversed earlier policies to heavily subsidise water and power supply. Worse, this has suddenly emerged as a pre-election populist ploy for other states-Maharashtra is already testing the waters. Most experts agree that this would be economic suicide. Karnataka’s decision to enhance reforms may come as a relief for the industry.

Still, the bureaucracy itself is somewhat dissatisfied with the progress in Karnataka’s infrastructure. Indeed, both bureaucrats and politicians seem to be excessively cautious of the environment before going all out to promote the state to investors. Even the Global Investor Meet 2014 was much debated before a green signal was given by Chief Minister Siddaramaiah, who is known to be media-shy and a little left-of-centre in views. The state does not rank on top when it comes to clearances and the much-touted single-window mechanism. The investing industry finds the state lucrative but finds firewalls at pre-implementation stages.

Despite the fact that Karnataka is one of the premier states to have addressed land problems through creating land banks, to have established e-land records, and ranks high on digitisation and online services, the gap between infra-facilitation and active enablement for industry investment has remained.

The infrastructure development projects themselves are an example of delays. Railway lines take decades to complete, many road widening projects have fallen prey to the well-known tug-of-war of development versus local political leadership demands.

The dreaded days of former Prime Minister Deve Gowda’s protests on the streets seem to be over. Yet highly publicised negativities-Bangalore’s garbage woes, the mining scams and subsequent ban, and land mafia-political nexus in the state have badly bruised the one critical and qualitative rider beyond all else-trust. The controversies need to be adequately addressed and communicated to the industry before a full faith between the state and domestic and international investors to re-emerge.

Why Karnataka?

1. The Global HR Consultancy firm Mercer top ranked Karnataka in its survey of the ‘Best place to live and work by Expatriates.’
2. Bangalore city was ranked among top five FDI recipient cities in 2011 by Ernst & Young in its 2012 India attractiveness survey, ‘Ready for the transition.’
3. World Bank top ranked the state for a healthy business climate and attracting investments in its Investment Climate Index of 2009
4. The state was adjudged as the most preferred investment destination in ASSOCHAM’s Investment Meter of 2010
5. Investors ranked Karnataka as second in maintaining a positive investment climate in FICCI’s Foreign Direct Investment Survey of 2011.
Compiled by: CII

KARNATAKA SCORES

Property registration: Computerised procedures and ‘anywhere registration’
Construction permits: Online submission and computerised approval of building plans in Bangalore urban area
Payment of taxes: GIS-based property tax payment system

IMPROVEMENT NEEDED

Land acquisition: Gujarat’s policy based on partnership with owners and market-prices, and Andhra Pradesh with its smooth and predictable procedures for land allotment, are on top.
Single-window clearance mechanism: Andhra Pradesh and Rajasthan emerge on top-industries say they have experienced "true single windows" in these states alone.
Availability of power: Gujarat and Rajasthan have achieved good results-Gujarat is power-surplus.
Availability of information: Maharashtra and Gujarat win this one, with multiple-level dissemination of information-often through dedicated channels. Indeed, Karnataka has often failed to communicate critical issues, even enabling mechanisms, in an effective and efficient manner.