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economy & markets
The Unfinished Agenda
Before embarking upon new projects, the government should first tackle problems that grounded the economy’s earlier growth engine
COMMENTS PRINT
economy & markets
Instead of trying to time the market and invest around events, Investment in equities needs to be viewed from an asset allocation perspective
Samir Arora
economy & markets
With significant excess capacity plaguing the industry, recovery in investments will be slow and painful
Neelkanth Mishra

From debilitating despair to harbingering hope, from sinking diffidence to levitating confidence: the minds and hearts of India and its stakeholders seem to have transformed from pessimism to optimism. It is incredible how the overnight mood makeover was ushered by a single event and a single person, Narendra Modi, who is the fountainhead of positive India today. Never in the history of independent India has faith in a leader planted such Himalayan belief in its future.

It will be an Everestian challenge for the new government to fulfil the sky-high expectations of the youth, middle class, India Inc and other stakeholders. From unprecedented GDP growth to job creation, from vulnerability to sustenance, from growing inequality to acceptable equality, from robbing inflation to powering price control... the order of expectations is a daunting challenge for the new PM, solely accountable to India in the context he himself set.

An economy can probably grow around 5% if it is fuelled just by consumption, governmental expenditure and maintenance investments, which has been our experience during the last few years with the collapse of growth investments. India needs to sustain near double-digit or double-digit growth to meet its needs and aspirations. This order of growth is not impossible, given the fact that 80% of India is to be built and rebuilt to create a competitive, happy and safe life environment for its 120 crore people. Building India can absorb massive growth investments for decades together and that can take us close to double-digit growth levels for long periods.

Same Old Issues

Our railways belong to the early 20th century. The aggregate capacity of all our ports may not match with the capacity of a single port elsewhere in the world. We hardly have any expressways. Even after 25 years of its inception, we have not even reached the halfway mark in our National Highway Development Programme (NHDP). Our per capita power consumption of electricity is one of the lowest in the world. Availability of power 24/7 in all corners of the country seems like a distant dream. Despite being blessed with abundant treasures of natural resources, our mining sector is plagued with low productivity and non-transparent practises, seriously limiting our growth. We have just four world-class airports. Half the population of the country does not have access to basic health care. Our manufacturing lacks global competitiveness, both in terms of cost and quality. The agriculture sector is decades due for modernisation and it is still largely monsoon-dependent. Logistics for most economic sectors are still rudimentary. Urban living is worsening with each passing year as infrastructure remains stagnant, failing to meet the needs of ever-growing urbanisation.

Most importantly, our defence competitiveness is rusting year-on-year. While problems abound in every sector of the country, on the other side of the coin, these are massive opportunities that can absorb trillions of dollars of investments for several plan periods. Investment flows towards profitable opportunities like water flows towards gravity. There is no dearth of money in the world for the right opportunities. Emerging economies like ours need to create appropriate policy and tax framework to create competitive and attractive opportunities for global investors.

 
 
Emerging economies need appropriate policy and tax frameworks to attract global investors
 
 
Even during his election campaign, the prime minister identified and set his sights on some nation-building projects. These include bullet trains, expressways, interlinking of rivers, new cities etc. The agenda of the new government is naturally expected to include these projects. It should also include re-commissioning growth in the sectors that got derailed in the last few years by resolving the problems that tripped them. Several airports are pending for privatisation due to regulatory and union issues. The power sector got short-circuited midway due to non-availability of fuels at affordable prices, disruptive financial position of several state utilities, absence of suitable alternative policies and unviable PPAs (power purchase agreements). Nearly 50,000 MW coal and gas capacity has been rendered idle or stuck midway in construction due to the unresolved issues of the sector. The mining sector got undermined due to inordinate delays in environmental approvals and practices that did not stand scrutiny. NHDP collapsed largely due to the use of unviable practices by the bidders and the blissful acceptance of such happenings by NHAI (national highway authority of India) without the foresight of the eventual peril of these actions. Politicisation of land acquisition for new projects and the subsequent impractical Land Acquisition Act have poured cold water on entrepreneurial fire. The last nail in the coffin was hammered through retrospective tax legislations to defeat the verdict of the highest court of the land. Besides, the policy-making machinery of the country went into a coma with the exposure of successive scams and the consequential loss of confidence to take decisions.

Pending Issues

Before embarking upon new projects such as building new cities, interlinking of rivers etc., the government should revive the earlier growth engines such as NHDP, power sector, airport sector, sea ports and telecom by resolving the problems that grounded them. That would give confidence to the investing world and the country’s entrepreneurs that this government is capable and can succeed where the earlier government failed. It should clear all pending projects expeditiously within a published time frame and support and ensure their execution. Investor confidence should be restored by reversing the unwise retrospective tax legislations of the erstwhile government and a stable and just policy framework should be guaranteed. The government machinery should be put in the top gear by revamping talent- and morale-boosting measures.

 
 
Instead of hefty compensation, make farmers partners in the value of developed land
 
 
In fact, the revival of the power sector should actually begin by getting the stalled and idle projects across the country back to work. This would involve decisions such as one-time relaxation for conversion of fixed price PPAs into fixed return PPAs, gas price pooling, tax waivers for imported gas, transparent and contextual price formula for domestic gas, peak-time power supply PPAs for expensive gas power stations till such a time when gas becomes affordable, rapid privatisation of power distribution, expeditious improvement in the domestic coal availability through appropriate policy measures such as privatisation, making the state-owned Coal India accountable for its targeted production and introduction of private rail carriers for coal. Since power distribution has been plagued by political interferences and consequential inefficiencies, adversely impacting the viability of the whole sector, its repair is an urgent need and should be addressed by the government on a high-priority basis. Besides privatisation, the government can also explore bringing all the distribution assets, such as the Power Grid Corporation, under one umbrella to administer stable and universal policies.

The revival of the highway sector should begin with aggressive awarding of pending projects on EPC basis. The private sector will slowly return to the ring with increased sector activity. New business houses should be encouraged to participate in the bidding for new projects. Old disputes should be expeditiously resolved. Irrational bidding too should be discouraged through appropriate eligibility criteria. A takeover scheme for existing unviable projects should be designed and offered to the developers.

Tariff-based approach should be adopted for airport sector privatisation rather than return-based approach. Airport land monetisation should be allowed to bring down passenger tariffs of private and public airports, with appropriate incentives for private operators. The role of the regulator should be minimised in tariff fixing. The regulator should focus more on the policy framework for the development of the sector.

Flawed Land Acquisition Approach

Land availability, its faster acquisition and acquisition pricing under the new Land Acquisition Act have become major suffocating problems for infra projects. To the extent possible, farm land should not be allowed to be acquired for industrial purposes. It may not be inappropriate to de-reserve, say 10% of the forest land for industrial purposes. It is a known fact that huge tracts of reserved forest are nothing but bushes and boulders. Such land can be made available for industrial purpose while afforestation can be increased in the balance forest areas. Where it becomes unavoidable to acquire farm land for industrial purposes, farmers should be made partners in the value of the developed land rather than giving them hefty compensation, which makes projects unviable. To illustrate this suggestion, if a project needs 1,000 acres of land, the project may be permitted to acquire 1,500 acres of land and develop the entire land. The excess 500 acres of developed land can be returned to the farmers in the ratio of their original land ownership, which can fetch much higher value for them than mere high compensation.

It may not be unethical and inappropriate to use illegal Indian savings treasured abroad for infra projects in the country. If not an amnesty scheme, some other transparent scheme should be designed for using these resources for the country’s benefit. Possibly, a bearer bond scheme could be floated for investing this money in infra projects with a low return, repayable after say 20 years. An opportunity could be given to the illegal export-hoarders of Indian wealth to redeem their sins by offering them an appropriate scheme to invest in Indian infra projects. This approach can provide cheap and long-term capital for the infra sector.

Lastly, but equally importantly, a balanced and practical approach for environmental management should be adopted. The environment should help human living and not obstruct it. Government should take environmental enthusiasts into confidence about the country’s needs through proper dialogue and seek their cooperation for the country’s prosperity. It should adopt a transparent, time-bound and screen-based approach to environmental clearances. Similarly, even for project and natural resources bidding, a transparent screen-based approach may be adopted.

These are just some ways that promote the healthier living of the people. The mantra for right governance is dharma in its true sense — one that seeks to promote the well-being of the people on a sustained basis.


Subba Rao Amarthaluru Group CFO, RPG Group

COMMENTS PRINT
economy & markets
Instead of trying to time the market and invest around events, Investment in equities needs to be viewed from an asset allocation perspective
Samir Arora
economy & markets
With significant excess capacity plaguing the industry, recovery in investments will be slow and painful
Neelkanth Mishra
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