12 ways India can revamp its creaky infrastructure

Vinayak Chatterjee says while the challenges are manifold, There are still ways the new government can breathe life into the country’s infrastructure agenda.

It was around the Ninth Plan (1997-2002) that India seriously woke up to the infrastructure challenge. 

With a slew of interventions, the key indicator of infrastructure development, gross capital formation in infrastructure (GCFI) as a percentage of gross domestic product (GDP), started a steady upward climb. 

From 2002 onwards, the government aggressively pushed public-private partnerships (PPPs) to generate infrastructure investments.

The results exceeded expectations. The share of private capital in infrastructure investments, which stood at 22 per cent during the 10th Plan period (2002-07), moved up to 37 per cent in the 11th Plan period (2007-12).

The 12th Plan (2012-17) optimistically budgeted for 48 per cent. But, as is well known, the first two years of the 12th Plan have seen an extremely worrying slowdown. 

Going forward, the challenges are manifold. Here are 12 priority suggestions for revitalising the infrastructure agenda.

…

Reform the Railways

Three reports provide a clear reform agenda: the Rakesh Mohan Committee (2002), the Kakodkar Committee on Railway Safety (2012), and the Pitroda Expert Group for Modernisation of Indian Railways (2012).

The Rakesh Mohan Committee suggested that the Railways must eventually be corporatised into the Indian Railways Corporation (IRC). The government would need to set up an Indian Rail Regulatory Authority (IRRA) to distance the IRC from the government.

The IRC should be governed by a reconstituted Indian Railways Executive Board (IREB). The government of India should be in charge of only setting policy direction, and constituting the IRRA and the IREB.

...

Denationalise coal mining

India boasts the world’s fifth-largest coal reserves. Yet, we all are aware of the bottlenecks in supply and our dependence on Coal India.

Coal mining was nationalised in 1973. It now needs to be denationalised with a sense of urgency.

...

Resurrect the river-linking plan

Prime Minister Atal Bihari Vajpayee had set up a task force under former Union Power Minister Suresh Prabhu in 2002 to resurrect the idea in the hope of creating another iconic infrastructure initiative.

The reasons were powerful. Increasing disposable incomes would prompt voters to demand better water services and pay for them; similar pressures in agricultural water demand would arise due to diversification of Indian agriculture.

Rising energy costs would make pump irrigation increasingly unattractive. Rapid growth in urban agglomerations would seriously strain their groundwater-dependent supply systems.

The phenomenon of simultaneous droughts and floods would be substantially addressed, and inland water transport would be fostered.

...

Stop bidding out projects without sovereign clearances in place

Here are two ways to bite the bullet. First, have the sponsoring government authority set up a 100 per cent government-owned special purpose vehicle (SPV) to implement the project. This SPV should secure all permissions and clearances.

Then the authority should bid out the SPV to the highest bidder.

Second, let all infrastructure PPP bids carry a special annexure listing all of the permissions required, thereby delineating the responsibilities of the sovereign sponsoring authority.

Get babudom and its political leadership to be publicly and monetarily accountable.

Let them not merely bid out projects as bemused observers.

...

Form an infrastructure ministry

There are 12 ministries at the central level that directly look after infrastructure. The rural development, environment, industry and commerce, and heavy industries ministries raise the count to 16.

Adding the Planning Commission, finance ministry, the Prime Minister’s Office and the Cabinet Secretariat (Cabinet Committee Infrastructural and Project Monitoring Group) raises the number of “involved” institutions at the Centre to 20.

And they are all co-ordinating with 29 states. It is about time such “co-ordination” was institutionalised through a ministry for infrastructure.

...

Reshape IIFCL to catalyse long-term funds

The Interim Report of the High-Level Committee on Financing Infrastructure (August, 2012), headed by Deepak Parekh, argued for a significant restructuring of the role of India Infrastructure Finance Company Ltd (IIFCL) from that of a normal lender to one that provides guarantees for bonds and extends subordinated debt.

This would make IIFCL a catalyst in channelling large long-term inflows for infrastructure projects.

...

Independent regulatory authorities

The Planning Commission’s draft legislation of 2006 recommends that regulators need to be directly responsible to the legislature.

Selection should not only be fair but also “best in class”. India should consider opting for multi-sectoral regulators for communications, electricity, fuels and gas, and transport.

This would eliminate proliferation of regulatory commissions, help build capacity, promote consistency of approach and check costs.

In the case of states, a single regulatory commission for all infrastructure sectors may be more productive and cost-effective.

...

Set up land bank corporations

Passage of the Land Acquisition Bill (2012) has given rise to apprehensions on adequate and timely availability of land for development purposes.

Energetic and visionary state land bank corporations need to be created.

They should be empowered under the clause of “public purpose” to acquire large tracts of unused, unusable or waste land.

They should be sufficiently capitalised by state governments and have the power to leverage more finance on the strength of their land-bank inventories. They could also oversee resettlement and rehabilitation obligations.

...

Push hydroelectricity

India has exploited only 24 per cent of its hydro potential at an installed capacity of around 35,000 megawatts against an “identified potential” of 148,701 Mw.

A realistic target would be to try and restore hydropower to at least an overall share of 20 per cent in India’s energy basket by the end of the 14th Plan period.

This would require an addition of 62,000 Mw of hydro capacity over the next 14 years.

Implement the 74th Amendment for urban governance

The 74th Amendment to the Constitution in 1992 sought to bring about a major change in the functioning of urban local governments.

Unfortunately, very little additional empowerment of municipal bodies has happened.

...

Clean up electricity distribution

Distribution reform requires micro-management of millions and millions of end-users with metering, billing, collection, theft reduction, mafia control, and local area infrastructure upgradation.

This systemic micro overhaul across the length and breadth of the country with attention to detail and a granular set of related activities needs massive orchestration.

Large-scale appointment of “distribution franchisees in PPP mode” is the only practical solution.

...

Create a 'National Infrastructure Partnership Commission'

There is an all-pervasive belief in the private sector that the manner in which risks are currently shared between the government and private players in PPP contracts is heavily skewed against the private sector.

Where, then, is the so-called “partnership”? Such a partnership should be carefully nurtured.

There is the Infrastructure Concessions Regulatory Commission in Nigeria, the PPP Advisory Unit in Ghana, the PPP Centre in the Philippines and the PPP Unit in South Africa.

In the case of South Africa, for example, one of the key functions of the PPP Unit is “contract renegotiations”.

Here’s hoping that with a new government, we also get a revitalised infrastructure agenda.

The writer is chairman of Feedback Infra.