Closing the gaps

The committee set up under former Reserve Bank Deputy Governor Rakesh Mohan to figure out how to finance the development of Indias infrastructure has quite a mountain to climb. The five years of the Twelfth Plan,starting from March 2012,are supposed to somehow drum up 1 trillion for infrastructure. The mid-term appraisal of the Eleventh Plan,which was released in March last year,made it quite clear that the big bottleneck to Indias growth was infrastructure. Ports,water supply,and rail were particularly short of investment,getting little more than half of what was needed. It was also clear that the mind-boggling amounts of investment required to meet needs would not be made without substantial reform,and the involvement of the private sector. The Centre expects that about half the funds will come from the private sector,but given how tight the fiscal situation is,it should probably be looking for more.

The committee,it is reported,is likely to study several different possibilities to free up infrastructure financing. The most obvious may be reform and deepening of the corporate bond market. Infrastructure projects have a uniquely long-term pay-off,and financing through debt and bonds needs to be considered an option. In order to deepen the market,foreign investment in infrastructure companies bonds should be liberalised. Other self-imposed constraints that must be got rid off are the norms that limit how much banks can invest in the infrastructure sector. For risk management reasons,all big investors are subject to what are called sectoral caps. Yet,so large and investment-heavy are infrastructure projects that funding just one could take you to your cap; other available projects will thus go a-begging. Ensuring that investors are exposed to various different sectors might make sense in the West,where economies are not growing at 8 or 9 per cent and infrastructure is basically in place. Here,other standards are needed; what is more risky is not allowing people to diversify across projects,rather than across sectors. Exposure norms must be loosened to help projects get off the ground.

There remains,of course,the question of political will to get infrastructure built,without which much of this will be useless. As long as fear of the private sector or a slavish dedication to an outdated non-reformist mindset holds back the clearances of important projects,investment will not materialise. For the Twelfth Plan to succeed in mobilising the resources it must,that will,too,must be summoned.