Where there8217;s a will 8230;

Where there's a will, there's a, well, highway, is the tongue-in-cheek manner in which finance minister Yashwant Sinha chose to describe t...

Where there8217;s a will, there8217;s a, well, highway, is the tongue-in-cheek manner in which finance minister Yashwant Sinha chose to describe the behind-the-scenes manoeuvering that went behind ensuring the success of the Prime Minister8217;s much-hyped 7,300 kilometers of highway criss-crossing the country. Sinha told a Delhi audience earlier this week, the PM wanted to make a big announcement at FICCI8217;s annual general meeting on October 24, 1998, to lift sentiments from the morass they were in since economic growth had really slowed.

At that time, the PM8217;s Office came up with the idea of this mammoth road project from the north to the south and from the east to the west. Since the time was too short, no one really examined the project8217;s viability, or even how it was to be financed. The PM, to quote Sinha, just went and announced it. That8217;s when Sinha and his counterparts in the surface transport ministry scurried to find ways to make the project happen. Sinha decided to levy a cess on diesel and petrol to build a corpus fund for the project, the transport ministry decided to merge the somewhat unviable project with an existing Golden Quadrilateral one connecting the top four transport hubs 8212; Delhi, Mumbai, Calcutta and Chennai.

So what8217;s the moral of the Sinha story? Make announcements in haste, andthen find ways to justify them? It8217;s unfortunate that this is the way thingsunfolded, but the real lesson is different. It8217;s that there are enough funds for infrastructure projects 8212; the real issue is to find imaginative ways to get them and to ensure that infrastructure projects are planned right.

Another great example, coincidentally also unveiled this week, is thatinvolving the Karnataka government and the Infrastructure Development Finance Corporation. Over the next few days, IDFC and Karnataka will sign a first-of-its-kind agreement on financing a 210-MW power project in the state. Much like the World Bank, before disbursing the Rs 500 crore loan, IDFC has got the state government to agree to various conditionalities such as those related to a time-bound restructuring of the state8217;s power sector.

So how did this happen? Well, according to the Congress8217; joint secretary, economic affairs, Jairam Ramesh, who was a key player in this saga, he and Deepak Parekh, who is one of the promoters of IDFC, found a fundamental mismatch in funding patterns in India. Bankers were typically flush with funds to lend, and infrastructure projects were generally starved of cash.

That8217;s where Yashwant Sinha comes in, as does the late power minister P.R.Kumaramangalam, along with a host of others. Sinha called a meeting of financial institutions in July, and said that if multilateral agencies like the World Bank were comfortable with comprehensive time-bound reform promises from the states they lent funds to, surely this kind of arrangement could be worked out with the financial institutions as well?

So, lo and behold, you have the financing ready for the Karnataka Power Corporation8217;s project. With Karnataka chief minister S.M. Krishna agreeing to lay down, and stick to, a time-bound restructuring-cum-privatisation schedule, IDFC had no problem in finding other members of the loan syndicate. A steering committee, comprising the state government, its power corporations and IDFC will supervise and monitor the progress of the reforms, and will meet at least once a month for this.

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Enthused by Sinha8217;s cess model, various states are working on ways to raise funds which can then be earmarked for infrastructure projects, to be simply lent to private players, or to contribute as the government8217;s share of equity, or even to partly subsidise some part of a project 8212; in a highway project where tolling is difficult to do for some years, for instance, the government may pay shadow tolls8217; to the private developer from this fund.

The Punjab government is levying a mandi tax to raise around Rs 80 crore ayear to set up a corpus fund dedicated to infrastructure. The Gujarat government is finalising plans to float a Rs 3,000 crore bond scheme, and has already set up a privately-managed Asset Management Company for this.

So what8217;s missing in this rosy picture of funds no longer being such a majorconstraint for infrastructure projects? Vinayak Chatterjee who headsFeedback Venture Limited points out it8217;s the lack of activist developers 8212; people like Enron8217;s ex-power-lady Rebecca Mark who conceive a project from scratch, and then hustle scores of people to make the project happen, tolobby with countless state agencies to provide as many comfort factors to lenders, to secure the project8217;s cash flows, and so on.

Jairam managed to achieve something along these lines with the Karnataka project, and Vinayak is setting up a Rs 100-crore corpus fund which Feedback will use to develop small-sized infrastructure projects as the lead promoter 8212; a corpus of this size can catalyse investments of up to Rs 2,000 crore over a decade. If he8217;s successful, Vinayak should find it easy to raise and then leverage more funds. More power to their elbows.

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As Karnataka has shown, innovative thinking is really the key to the fundscrunch problem