The new Development Finance Institution
(DFI) will be a fairly large entity that will play a key role in the Central
Government’s strategy to facilitate the creation of a robust financing
ecosystem for infrastructure projects in the country. Simultaneously, the government also remains
committed to rolling out systemic interventions to ensure the necessary action
on the proposed divestment and asset monetisation programmes, says Dr. TV
Somanathan, Secretary Expenditure, Ministry of Finance, Government of India.
We have a 35 per cent increase in
allocation for the National Infrastructure Pipeline (NIP). Nearly over Rs 21
trillion needed to be spent by 2021. Have we accounted for all of that within
this increase or are we also looking at tapping other sources?
No, the government’s provision in the
budget is not sufficient to completely account for what is required on a YoY
basis. The total funding will consist of the centre, plus states, plus the
private sector. This is broadly our proportion but, yes, more money will be
required.
As there are funding-related challenges
within state governments, how do you propose to resolve such constraints?
We’re also looking at ways of incentivising
states to spend a larger proportion of their budget on capital. And we are
mindful of the autonomy of the states. We constantly face these challenges of
the differing demands from different commentators and, at times, the same
commentator at different times. We are looking at what we can do that is
appropriate. Although we do realise that something needs to be done about it,
you will have to excuse me for not being specific about it at this stage.
Since we are also looking at attracting
foreign capital via sovereign wealth funds, etc., it is critical to enhancing
ratings to augment the access of these institutional investors. What can be
done in that area?
Yes, and I think that the new DFI has
credit enhancement as one of its areas of operation. We are willing to put some
government money behind these initiatives. If you have a project that is low
rated, then we can upgrade the rating with a little bit of sovereign help in
terms of you know first losses, guarantees or some backup from either the
Central or State Governments. The other way of doing this is by using an
intermediary to channelise private funds into a higher-rated institution, which
then makes some of its investments into lower-rated institutions. These are
some of the ways that we would be working on it, with the DFI playing an
important role in accomplishing our objectives.
The other area which has probably not
been accounted for in the NIP is the unfinished, abandoned or stuck projects.
Bearing this in mind, we could perhaps think of deploying a ‘Mission Director
InfraNirbhar Projects’ along the lines of what was done previously. What is
your view on this issue?
I
think there are two kinds of stalled or stuck projects. For purely government
projects, we have a system called the Pro-Active Governance and Timely
Implementation (PRAGATI), which is overseen by the prime minister himself and
has proved to be quite effective in starting projects that were stuck in the
past. Then we also have projects that have a private element as well as a
public interface. You are right in saying that there is certainly scope for
better coordination from the government side if it also involves public agencies,
state governments, environmental clearances and land acquisition. But we also
have a lot of projects that don’t have much public interface. Such projects are
mostly stuck in the National Company Law Tribunal (NCLT). As for a mission
director, I think it can be helpful when the problem is largely on the
government side. Like, for instance, a state government suddenly withdrawing
from an infrastructure project. Such matters can be resolved through
administrative support. But if you have a project that is stuck due to solvency
issues, then it becomes more of a financial resolution where NCLT’s role comes
into play. If I were to showcase the newly created DFI how differently could I
position it versus the previously created long-term institutions for the
infrastructure sector like the India Infrastructure Finance Company Ltd
(IIFCL)? Firstly, DFI is going to be much bigger in size than IIFCL. So, I
think, scale is one important dimension where it is going to be very different.
Secondly, it is now part of a more integrated strategy as an institution that
aspires to facilitate the creation of an infrastructure financing ecosystem in
ways that the National Housing Bank (NHB) has done for the housing sector or
National Bank for Agriculture and Rural Development (NABARD) has done for the
agriculture sector.
Asset monetisation is going to play a
very important part in revenue generation. But care would also need to be taken
to bring credibility back into this programme. From our point of view, the
divestment programme is more credible while asset monetisation appears somewhat
difficult. Your comments?
I fully agree with you that asset
monetisation is more difficult because pricing is much more transparent in
disinvestment done through market-based share transactions. But the sale of
lands or other assets doesn’t have that level of market price discovery.
Besides, we have a history in our country of prosecuting public servants who
sell public assets. So, public servants had to be mindful of that! However, we
need to be also conscious of the changes in the law that have happened recently
in the Prevention of Corruption Act, which in 2018 was amended to remove the
section under which several honest public servants could be charged with
corruption. What that old section had was that if your decision resulted in
another person making some pecuniary gains without public interest then you as
a public servant could be accused of corruption. Even though there was no
element of personal gain or bribes! That section is not part of the statute
book anymore. You may note that the Union Budget speech referred to the
creation of a new agency for disposing of government land that would be managed
along the lines of a private sector entity. That is because we have understood
those challenges that we are attempting the create a new institutional
structure and a privately managed agency. That is the other way we are planning
to tackle it. Lastly, I would like to state that the mere fact that we are
acknowledging it is also important. We had not previously said privatise but we
are saying it now. That reflects a very important change in thinking. You may
say that you are waiting for action. Well, we intend to act!
- PRATAP PADODE & DR. SHUBHADA RAO