India could follow the infrastructure-led growth path to turn the investment cycle favourable, Union railway minister Suresh Prabhu said at the Business Standard Infrastructure Summit 2015 today. This would not only require new ideas, but new financing instruments, more than just new institutions.
Stating that India has an infrastructure deficit, Prabhu, who is one of the key persons in policy formulation for the infrastructure sector in the Modi government, said, "When we create infrastructure it is not for tomorrow, not even for today but it takes care partly for yesterday. That's why the deficit keeps rising." Further into the summit, land and financing were identified as the key challenges in the infrastructure growth story.
Financing of infrastructure would, nevertheless, need bold measures making "instruments far more important than institutions" Prabhu said while inaugurating the summit. This could even mean opening up the kitty available with the Employees' Provident Fund Organisation for use in infrastructure. The suggestion found support with SB Nayar, chairman and managing director, India Infrastructure Finance Company Ltd, later in the summit when he said 2-3 per cent of the incremental corpus of EPFO could be used to meet the core sector need.
Prabhu made a case for tapping into pension funds of Australia, Canada and other countries besides attracting sovereign funds of China and the West Asia. Australia, for instance, has a GDP which is less than $2 trillion pension fund corpus in that country. "China has foreign exchange reserves of some $4trillion which they are putting in the US treasury at 1 per cent interest rate," he said while hinting at the opportunity which India could offer.
He also said there was a need for public sector companies in the infrastructure sector to free up existing assets by capitalising them and borrowing money for new projects. Citing example of NTPC Ltd, the government-controlled biggest power producer in the country, the railway minister said, "Why not make sure that existing assets which are free from debt are capitalised to make more money. It is all possible. We really need to make sure that we bring a paradigm shift in this."
The idea of project specific companies being partially divested by NTPC in favour of pension funds and other financiers, however, was not found practical by Arup Roy Chowdhury, NTPC chairman and managing director later in the summit.
He said NTPC has given the government returns worth Rs 40,000 crore which might get reduced if equity in old projects was divested.
Prabhu, nevertheless, said PSUs could be the engines of growth. Drawing a parallel between India and Japan, the minister said corporates of Japan, which are in the private sector, had cash flow as high as 40 per cent of GDP but they were not investing. "Japanese economy was contracting but the private sector was not investing. In India, PSUs have huge cash flow but were depositing in banks for 5-6 per cent and creating problems for banks. Why can't we use PSU as engines of growth?"
Relying on public sector alone, however, would not be prudent. Unlike China where the investment is government to government, Prabhu said in India there was enough private sector ability in India and growth could take off from there. "First time we are developing the model let's not get overawed by the challenge." What is needed is to align all stakeholders whether regulators, banking systems, developers, policy makers and finally state governments which ultimately carry the burden and the cost of taking project forward.
At the ground level, projects faced land acquisition issues. Ravi Uppal, managing director and chief executive officer, differed with Roy Choudhury on the extent of advantage which the public sector has over the private sector on land acquisition. Giving a completely ground level view of land acquisition, petroleum minister Dharmendra Pradhan said his native district of Angul in Orissa had given 25,000 hectares of land for mining and other projects. Citing a report in Business Standard, he said villages in Chhattisgarh might have rejected coal mining in their area but the NDA government policy of sharing proceeds of auctioning of blocks with the state government could help in the uplift of local people. He pointed out the contrast between rural and urban view of economic policy as well as the demand which the constituents have on the government.