EDITED EXCERPTS FROM AN INTERVIEW
Have you seen a massive drop in infrastructure projects coming to the table?
In the past year, we have seen a very significant slowdown in real assets. A good 60-70 percent growth in our balance sheet is actually coming from refinancing, and not from financing fresh projects. The downturn is here to stay and I don’t see it changing any time soon, unless investor appetite for greenfield projects comes back. To put it bluntly, it would be hard to achieve 8-percent-plus growth without a big jump in infrastructure growth.
What is keeping fresh investment off the table? Is it environment clearances, the often repeated policy paralysis, or simply the difficulty in doing business? What’s changed now outside of the growth rate?
Doing business, in sectors where a lot of government interface is involved, is not at all easy. Infrastructure is one sector where government interaction is ubiquitous. There is little transparency in decisionmaking, and that poses a stumbling block. The speed of decision-making, predictability with which regulatory approvals are granted, stability of decisions already taken, etc, are all big concerns. A lot has been said on this already, but what’s not been paid attention to — which signals the problems — is deeper than this. We have to worry about safeguarding and protecting the investments that have already been made. Why are we forgetting that? Billions of dollars have been invested by private parties in infrastructure and for all the reasons we have talked about, the returns have been very disappointing.
Are you specifically talking of environment and land acquisition only in terms of policy?
There is unpredictability and sloth even with respect to routine decision-making. The number of people involved, even in taking the smallest of decisions, is very large. Why do we need badly worded notifications? Why do we have such intense paperwork? Seeking clarifications on these will only fuel the business for the legal community because a lot is left to interpretation. Another example is when there is flip-flop on decisions or existing policies and it triggers a slew of procedural changes.
What led to the breakdown of the Public Private Partnership (PPP) model? Wasn’t the infrastructure sector meant to benefit the most from it?
When you think back on it, it is not that difficult to understand why the model broke down. Inviting private parties to infrastructure space — even in the most sophisticated nation — is tricky. Infrastructure has a quasi-public responsibility. There is an underlining need of public service and public good. It, therefore, requires a very sophisticated regulator to define the basis on which the private party participates, oversee the operations, and ensure that they are transparent and expeditious. The pace at which private participation has happened has been extraordinary. We went from 3 percent of the GDP to 8 percent in infrastructure spending in the past six years. At one time, almost half the investment corporate India did, was in infrastructure. That’s huge. The mindset of people couldn’t keep pace with the rapid growth in private participation
So are you blaming the government for not being prepared, or are you suggesting we were clueless about managing the transition?
There is a government capacity issue, no doubt. The private sector is greedy too. Everyone shares the blame. I am trying to describe it as objectively as possible. If you want to let private players into the infrastructure sector, you have know how to regulate the greed. If you fall victim to it and don’t have the capacity or the legal and administrative system to manage the entry of the private sector, you get into trouble. You can’t afford to let the private sector not know how to deal with their profit mindset in infrastructure projects.
So are we, after all these years of growth, still searching for a regulatory body that will manage this challenge?
Let’s not imagine we will go back in the next two years to the heydays of infrastructure spending; that will not happen. In my opinion, it is not such a bad thing since we were trying to do too much too soon. This is an opportunity to fortify the system, it’s an opportunity to reflect upon and fix our administrative system before we go back to that scale of participation. That way fewer people will remain engaged, and they will add to genuine infrastructure.
So if private sector interest is at an all time low and the government is strapped for funds are you saying we don’t know who will lead infrastructure growth?
I don’t think people are willing to accept that we have reached this point. Any time you talk to the government that we need the next trillion dollars in India for investment, there is an unwritten assumption by them that at least half of this is going to come from the private sector. And this assumption is based on the past investment trends during the boom years. The government’s logic is that if 40 percent of the $550 billion came from the private sector just when India was beginning to boom, then why would they not invest again? The government is asking why not have 50 percent of the future investment of one trillion dollars come in from the private sector? But we are forgetting that money from the private sector came in when we were growing solidly and since then much has changed. The regulatory and business environment has deteriorated considerably. So it is almost certain that the private sector will not be in a position to bring in this kind of money because of the change in the economic climate.
What’s the future of the relationship between environment and infrastructure? In India’s case, growth inherently comes with a compromise on environment.
We have never really had a serious debate about the trade-off between infrastructure and environment. The 9 percent annual growth target is not compatible with our aspiration for environment management in this country. We are overambitious with our growth targets, if we want to seriously protect our environment.
So, are you saying we are overambitious about protecting our environment, given the pace of growth we aspire to achieve? Also, regulation is often criticised, but that’s the only deterrent against industry that wants to thrive on natural resources without paying attention to those adversely impacted in the process.
This may sound complex, but it’s actually quite simple. Unless you invest enough in energy infrastructure, you cannot grow at 9 percent. Given where we are today, our energy consumption will remain primarily thermal. We cannot raise a magic wand over such historic issues. Our legacy shows, we need to invest immediately in thermal energy, which means more investments in coal and coal mining. Given our institutional constraints, 9 percent growth implies an assumption of our ability to develop energy infrastructure. That, given civil society’s intolerance on environment issues, is just not realistic. In this sense, the growth target is too ambitious given our preference for environment protection. The other dilemma is that for the regulations that we have, which are aspirational, our administrative capacity to execute those lofty ambitions just doesn’t exist. In that sense, our environmental standards are much too ambitious for our own capacity to administer them. It’s a total mess.