Optimists see the glass half-full, pessimists see it half-empty, but the opportunist zooms in and drinks whatever water there is in the glass. Perception is the governing reality. Many believe that the time may have come to start sipping the water again. Consider the following 11 reasons:
One, PPP firmly established: In the mid-nineties there was widespread scepticism on whether India’s socialistic DNA and left-leaning political parties would ever allow public utilities to be owned and run by the private sector. Today, no major political party has any conceptual issue with PPP as long as it is above board. The 11th Plan has ended with a little over 35 per cent of the infra spend coming from PPP. The 12th Plan could well see 50 per cent from PPP. Sufficient administrative maturity, conceptual clarity and capacity have been achieved. Between 1990-2010, according to the World Bank, India stood second only to Brazil in terms of investments through PPP; in 2010, India emerged as the largest PPP market in the world! Surely, there is something to celebrate here.
Two, reforming factor markets: India’s liberalisation started in the early nineties with “de-licensing”. This addressed the market for finished goods produced in factories, which was less than 18 per cent of GDP. Then came the opening up of the financial markets. Left untouched was the market for inputs — termed “factor markets” by economists. These include markets for land, power, water, natural resources, et al. With all the brouhaha over allocation of spectrum, coal, iron-ore and land, India is finally fixing its factor markets. With war-cries for “auction” and “transparent processes”, the emerging new order should stand the country in good stead for the next half-century at least.
Three, crony capitalism set to wither: Politicians have been rudely jolted into the realisation that the new India is intolerant of the historically cosy triangle of the corrupt politician, pliant and complicit bureaucrat and the carpet-bagger. Civil society, media and institutional activism (CAG, courts and regulators) are unlikely to allow the ugly head of crony capitalism to raise itself easily again. In recent times, the process of managing bids for infra projects has been far more transparent than many nations who habitually lecture us on this subject. All the bids for roads, airports, ultra-mega power projects, ports and so on that were put up for international bidding have been above board. One might complain about aggressive or irrational bidding, or post-bid “gaming” of concession agreements; but it is difficult to point a tainted finger at the bid process per se.
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Four, power push: The medium term “fuels” outlook for our coal-dominated energy sector is looking less scary. Coal India is reviving. The demand-supply gap of around 200 million tonne by 2016-17 is expected to be substantially made up by imports. On imports, the sarkar is getting administratively geared up, according to reports emanating from the Prime Minister’s Office (PMO) and Coal India. An inter-ministerial group is preparing PPP schemes for coal mining. The CAG furore has got all political parties to broadly agree to de-nationalise coal mining. Political and administrative decisions on import-aggregation, pooled pricing and tariff pass-through are on the anvil. The target for power capacity addition during the 12th Plan period is 88,000 Mw. With about 60,000 Mw under execution, this should be achieved. Transmission, other than an episodic event like the grid collapse, has not done badly. Power Grid was the only company from the power sector to meet its investment target during the 11th Plan. Plans are in place for strengthening the regional grid linkages to the national power grid to support the generation capacity addition. Phasing out the current Unscheduled Interchange (UI) format and implementing Special Protection Schemes (SPS) will all add to the robustness of the grid. The contentious heart of distribution reforms is “Open Access”. Here, the government is finally beginning to flex its muscles. Simultaneously, the finance ministry has agreed to restructure loans worth about Rs 190,000 crore to bail out electricity distribution companies. This package comes with a host of performance-related conditionalities. Finally, the renewable energy market is seeing the buzz it rightfully should.
Five, the Land Act: The Right to Fair Compensation, Resettlement, Rehabilitation and Transparency in Land Acquisition Bill, 2012 is a path-breaking piece of legislation that needs to go through in the winter session of Parliament. The Bill is unparalleled in emergent markets anywhere, seeking to marry sociology, business, economics and politics in an effort to clean up India’s archaic and often heartless land acquisition processes.
Six, the roads programme: While the pace at which projects are awarded and execution under the BOT model cause concern, it is clear that the PMO’s target of 9,000 km per year will be pushed through the EPC route, or what is popularly called the “cash-contracts” route. In terms of political economy it is a clever move. Quicker cash injections are possible to a liquidity-starved construction sector, roads are built where BOT models would not have worked but still required a development agenda, and the project development cycle is shortened considerably. By mid-October, 4,000 km are slated to be awarded and another 5,000 km by March 31. Largely, two-laning, this would imply an order-book (with cash) of almost Rs 30,000 crore straightaway.
Seven, public sector investments: the prime minister and the finance minister have persuaded cash-rich public sector units to step up investments with their surplus cash-holdings. Companies like Coal India, ONGC, NMDC, SAIL, NTPC and HAL are likely to embark on an infra investment programme of over Rs 150,00 crore, providing a much-needed public-investment “push”.
Eight, urban mass transit system and railways: Kochi is the eighth city to embark on a metro rail project. Nineteen others have metro rail projects on their drawing boards with the urban ministry eager to lend support. Delhi Metro’s highly visible success and Larsen and Toubro’s professionalism in a PPP format in Hyderabad have overshadowed the hiccups in Delhi’s Airport line. A metro revolution across India’s top 30 cities is set to usher in an exciting new transportation segment with concomitant huge investments. Add to this the fact that the railway ministry is now all set to enjoy economic freedom.
Nine, construction and real estate: Construction was one of the fastest-growing segments in the GDP figures for the first quarter — growing at almost 11 per cent. Housing and road works are the main contributors. Cement sales are reported to be growing at around 10 per cent. Realty developers say there is sufficient action in the suburbs of metros and smaller cities. The clearance of foreign direct investment in multi-brand retail is likely to stir up construction demand for storage and cold-chain infrastructure as well as for malls, hypermarkets and suburban retail sprawls. The renewed interest by Indian Railways and the government (following the Kelkar report) to develop or divest land parcels also augurs well.
Ten, project pipeline activation: Large work-orders from the Western and Eastern Dedicated Freight Corridors are imminent. The likely clearance of the urea policy will usher in Rs 30,000 crore of ready investments. On July 27, the PMO announced a road map for “fast-tracking” of flagship infra projects including two major ports in Andhra Pradesh and West Bengal, three airports at Navi Mumbai, Mopa (Goa) and Kannur (Kerala); the elevated rail corridor project in Mumbai, high speed rail corridor between Mumbai and Ahmedabad and redevelopment of five railway stations.
Eleven, political reenergising: The finance minister’s suggestion for a National Investment Board, (and its acceptance with alacrity by the establishment) marks the open acceptance by the top leadership that an unaccountable system of clearances would be replaced by a system that would be quick, decisive and accountable. Political and administrative activism in identifying stuck projects, action to clear logjams and announcing a slew of measures to ease infra financing have all added up to a feel-good environment.
The writer is the Chairman of Feedback Infrastructure
“vinayak.chatterjee@feedbackinfra.com”; Twitter: ‘@Infra_VinayakCh’
