Moving on the infrastructure agenda

Globally, municipal bonds are an established and major source of funding for urban infra. However, the municipal bond market is quite underdeveloped in India, notes Vinayak Chatterjee

Discussions on Indian infrastructure are largely on how much the Centre and states are spending (or not spending!), renewables, construction of highways and the travails of discoms. Over time, many suggestions have been made through this INFRATALK column to get the country moving purposefully on the single largest growth vector — infrastructure development. Ten of the suggestions deserve prioritisation, and are presented below as a consolidated agenda for action.

Kelkar Committee Report and 3P India: The Vijay Kelkar-chaired Committee on Revisiting and Revitalizing the PPP (Public-Private-Partnership) Model of Infrastructure Development was commissioned by this NDA Government itself; and the path-breaking report was submitted to the then finance minister Arun Jaitley on November 19, 2015. The report provides a road map of how to get private capital enthused and motivated again for PPP. It recommends a slew of interventions that include bespoke concession agreements, dispute resolution mechanisms, provisions for renegotiations, and insulating bureaucrats from harassment for decisions taken in good faith. It also reiterated the need for setting-up a PPP incubation-cum-propagation institution called 3P India for which Jaitley had allocated Rs 500 crore in his maiden Budget of July 2014.

A portal to track pending payments: Private sector suppliers to governmental systems continue to be agitated about getting payments released in time. A recent business newspaper report estimated this amount to be between ₹5-7 trillion across central and state entities. What is required is an entity-wise portal that transparently tracks invoices received, payments made and stock of unpaid bills. This is a simple software design and implementation issue. It appears that everybody in government agrees that such a mechanism is desirable and doable, but there is nobody to actually push for its implementation!

A water-focussed public works programme: The economy will need a forceful stimulus package to rejuvenate it and bring back jobs and demand across Bharat. Of the large, impactful capital-intensive projects, those in the water sector stand out. Projects would include river-linking, multi-purpose irrigation-cum-hydel power and canals through arid areas. A Rs 10 trillion National Renewal Fund has been suggested with a 50-year corpus that can be funded by consols and perpetual bonds — similar to what the Dutch, English and Japanese have demonstrated over centuries.

A national power distribution company (NPDC): Such a central government owned entity can pick up stranded capacities, and make for a robust alternate market that will reduce non-performing assets (NPAs) with credible sovereign backed power purchase agreements (PPAs). It can offer a pooled-price regime encompassing thermal, renewable, hydro and nuclear and provide a credible pricing structure along with tariff rationalisation. It can be a credible institutional option to take over distribution in Union Territories, urban as well as non-urban distribution circles willingly offered by state governments as well as bulk private users, since privatisation continues to be a mirage. Finally, it can showcase a ‘demonstration effect’ of 100 per cent smart-metering and lead distribution into the digital age.

A new national highway services authority: The idea is to allow NHAI to focus on construction; and have this new authority take charge of all the softer aspects such as road safety, driving comfort, highway amenities, tolling technologies, inter-modality, disaster management, value capture from land and the whole aspect of management of PPP partners and PPP formats.

Coastal Economic Zones: Coastal Economic Zones was one of the early ideas also endorsed by Arvind Panagariya, soon after taking charge of NITI Aayog. The effort here is to build world-class hassle-free enclaves to establish labour-intensive factories oriented to exports. High-quality industrial infrastructure, elimination of bureaucratic hurdles and availability of contemporary utilities are together expected to demonstrate the “art of the possible” in building a globally competitive India.

Operationalising the DFI: The decision to have a DFI did indeed proceed fast. From examining its feasibility in Q3 of 2020-21, to its Budget announcement on February 1 and subsequent Parliament clearance and Presidential assent for the Bill – the pace was laudable. It now needs to get quickly operational, with a board and management in place, and its initial tranche of funding. It is to have an equity base of Rs 20,000 crore and a one-time grant of Rs 5,000 crore plus a slew of concessional conditions.

Surety bonds: One of the key stress points in the construction and infrastructure sector has been availability of bank guarantees (BGs). A working group of the Insurance Regulatory and Development Authority of India, has recently circulated a working paper broadly aligning with the idea of surety bonds being issued by insurance companies. These could act as replacement for BGs. This will ensure that insurance companies play a much bigger role in infra financing in India.

Municipal bonds: Globally, municipal bonds are an established and major source of funding for urban infra. In the US, the size of the municipal bond market is over $3.8 trillion, but it is quite underdeveloped in India. A conjunction of changes in municipal accounting, rating, and autonomy of civic institutions are required to be pushed, as envisaged in the historic 74th Amendment to the Constitution. It is only then that municipal bonds can be raised in substantial amounts and we can get sustainable Smart Cities.

Completing the bullet train by 2024: Prime Ministers Narendra Modi and Shinzo Abe laid the foundation stone of the Mumbai-Ahmedabad bullet train on September 14, 2017. The timely completion of the project will dramatically change perceptions of rail travel — be it speed, service, comfort or safety, and will cascade into demands for a new generation of rail travel across the country.

Let’s get moving!

The writer is Chairman of Feedback Infra