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Infrastructure can’t be developed in a piecemeal manner

Infrastructure remains the biggest stumbling block to economic growth. Vinayak Chatterjee, chairman of consulting firm Feedback Ventures, h...

Written by Vinayak Chatterjee |
July 21, 1997

Infrastructure remains the biggest stumbling block to economic growth. Vinayak Chatterjee, chairman of consulting firm Feedback Ventures, has been hired by the Andhra Pradesh Government as a industrial consultant to plan its infrastructure development. In an interview with PRANJAL SHARMA, he says an integrated approach to infrastructure is missing in India.

Even though the Government is talking of developing infrastructure, there is no clear policy. Do you think we need an integrated infrastructure policy?

Infrastructure is not developed piecemeal thought different ministries. It needs an integrated approach. Unfortunately, our bureaucratic model is of 1956. Nobody is looking at infrastructure development in its totality. Government departments are dealing with roads, ports, telecom and power in isolation. A national level infrastructure development body has to be created and suitably empowered. It should be able to take a common view on projects.

This should be a national level task force which sits around a table and decide what is to be done and how. The state Governments should be a part of it, so that the project does not get stuck later. For most projects like roads and power, there has to be inter-state cooperation, and there is need for one body to do it.

What should be the Government’s priorities?

We should have set up the regulatory authority before privatising core sector. Even now we do not have a regulatory authority in the power and roads sector. An independent authority should be top priority.

Significant amount of homework technologically, legally, financially has to be done by the party which is promoting privatisation.

The problem here is that even a small private port today of Rs 300-Rs 400 crore, for its total feasibility packagetechnological, hinterland studies, architecturaleasily takes 5 per cent up front as pre-operative expenses before the bidding process even starts.

For a road project, the cost of doing a feasibility study is about Rs 3 lakh a kilometer. Thus for a 1000 km road privatisation project, you will need Rs 30 crore just to do a feasibility study. If you are privatising, somebody has to spend this money up front to make an internationally accepted bid document. The Government of India and the state Governments have to generate this money.

Where will this money come from?

Money cannot come from the Government. You have to create new corpus or an infrastr ucture initiative fund. For Andhra Pradesh Government we have structured it as Rs 50 to Rs 100 crore. For the Central Government the Infrastructure Development Finance Corporation has been proposed. But the concept is wrong. That company should not be taking equity positions or providing finance to projects.

That the private sector is willing to do. The initiative fund can generate a profit. If a raise rs 5000 crore, I can commission world class reputed consultants to do feasibility studies. Lets say that Rs 20 crore is spent on a feasibility package for a private port. All those companies who want to bid for it must give Rs 25 lakh to get the bid document. If 20 people collect the bid document, you have recovered Rs 2.5 crore.

The winner can be asked to recompense the fund for the feasibility costs. The fund makes an investment and recovers it with a profit of upto 30 per cent. As more profits come in the size of the fund will increase and it will be able to cater to more studies.

You make it sound very simple. Then why isn’t anyone doing it?

I don’t know. But Andhra is doing it. Of the first tranche of Rs 50 crore for the infrastructure initiative fund, the Government is giving Rs 5 crore. The rest we are trying to raise through World Bank, IFC, ADB and other agencies.

You need a corpus like this at the national level. The Government’s task is to sponsor, to kickstart the project and not to invest in a project. The idea of setting up IDFC is not flawed, but it will have no impact. Last year’s budget said it will get Rs 5000 crore. But what will you do with Rs 5000 crore, when just the Delhi-Jaipur road project costs Rs 2,000 crore.

IDFC will just take five or ten per cent equity in different projects. How will that help?

At the current pace, what future do you see for infrastructure development?

I think a time will soon come when each state Government will get its act together and the centre will be ignored. The centre has a bigger canvas. It has to worry about too many things. We interact with many state Governments.

States have no funds, infrastructure is crumbling. Industry is not coming. Most political bosses have seen the writing on the wall. Their patience is running out. The thing you hear in the state capitals is that lets structure it in a manner that the Centre is not involved. You will see a trend in the next ten years, where a lot of good work will happen at the state level and the centre can keep scratching its head.

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