High Voltage Talks! - Exclusive with Nitin Gadkari, Hardeep Singh Puri and TV Somanathan .

High Voltage Talks! - Exclusive with Nitin Gadkari, Hardeep Singh Puri and TV Somanathan .

India’s Finance Minister flexed her financial muscle with a huge thrust on ‘Infrastructure’. Given the severe contraction in the economy, sceptics were doubtful about the government’s ability to raise resources. But the budget drew power from innovative sources and did not punish the taxpayers. CONSTRUCTION WORLD’s Editor-in-Chief, PRATAP PADODE sought out key stakeholders in exclusive conversations and sought clarifications. The Government’s Ministers handling Roads, Metro Rail, Housing, and Aviation; and bureaucrat handling Finance, elaborately detail out the key elements of the plan to deliver a powerful infrastructure roll-out. Read on…

Here are highlights and exclusive interviews from the first three exclusive interviews (more to follow on ConstructionWorld.in),

India’s Finance Minister flexed her financial muscle with a huge thrust on ‘Infrastructure’. Given the severe contraction in the economy, sceptics were doubtful about the government’s ability to raise resources. But the budget drew power from innovative sources and did not punish the taxpayers. CONSTRUCTION WORLD’s Editor-in-Chief, PRATAP PADODE sought out key stakeholders in exclusive conversations and sought clarifications. The Government’s Ministers handling Roads, Metro Rail, Housing, and Aviation; and bureaucrat handling Finance, elaborately detail out the key elements of the plan to deliver a powerful infrastructure roll-out. Read on… Here are highlights and exclusive interviews from the first three exclusive interviews (more to follow on ConstructionWorld.in), featuring Nitin Gadkari, Minister of Road Transport & Highways, and Micro, Small & Medium Enterprises, Government of India; Hardeep Singh Puri, Minister for Housing and Urban Affairs; and Dr TV Somanathan, Secretary (Expenditure), Ministry of Finance, Government of India. “We have achieved a pace of construction of 30 km per day but we aim to reach a target of 40 km per day this year itself.”- Nitin Gadkari, Minister of Road Transport & Highways, and Micro, Small & Medium Enterprises, Government of India Nitin Gadkari, Minister of Road Transport & Highways, and Micro, Small & Medium Enterprises, Government of India, plans to appoint a committee from the private sector to focus on quality construction, cost reduction and designing. As part of the InfraNirbhar online series, in a virtual interaction with Pratap Padode, Editor-in-Chief, CW, on February 25, he revealed the names of the industry experts he would like to include as part of this committee. Having achieved a construction pace of 30 km per day, he is racing to reach his target of 40 km per day during this year itself. Additionally, he told us why he holds the makers of detailed project reports (DPRs) responsible for road accidents and how he plans to break the monopoly of the majors in the cement and steel sectors. Excerpts from a candid interview. Of the total investment in the National Infrastructure Pipeline (NIP), around 25 per cent would probably come from private capital. That is your asset monetisation plan as well. What about projects stuck in dispute resolution? We need a smooth and seamless take-off from here as well. In the case of arbitration, if you look at the performance of the National Highways Authority of India (NHAI) in the past six months, we are moving fast and formulating the mechanism. We are in the process of resolving issues, with several already sorted. As far as international expectations are concerned, this is an important aspect and we need to improve. Our system requires change and we are constantly pursuing it. We are making many innovative and transformative changes in the administrative set up of NHAI. Even with regard to people from the state government and other departments, looking at the system from that point as well, many changes are required and we are working towards it. Almost 18 per cent of the Rs.111 trillion NIP spending, i.e. Rs.20 trillion, has been identified for the roads sector in the next five years. It is given that private capital-related initiatives such as TOT, InVITs and asset management will contribute a significant part of the Rs20 trillion. We also are working on key reforms to attract private capital. An amount of Rs.180 billion is targeted through asset monetisation, InVITs and TOT. We have several good models. One model I am pursuing with banks is to monetise roads where construction is completed for 30 years; the bank monetises them and gives us the money. While money is not the main concern, the problem in the system is people who are negative and do not take decisions. We need to bring in transparency, time-bound decision-making processes, a corruption-free system, and quality consciousness. And time is important. Delays will be a big problem and, thus, have to focus on faster decision-making. However, there are some good people who are contributing. They are working day and night and the reason we are achieving the goal of 40 km per day. It is not only my credit; it’s all the engineers and officers working as a team. And we are getting results because of this teamwork. So change is a continuous process. For a good future, we need this continuous process of socioeconomic transformation where we make administrative reforms and change the rules and regulations. Design of roads is a major reasons that we have dropped down in safety ranking. Now that you are focusing on the auditing of roads and highways awards, you can benchmark who is doing better work in quality and design to inspire the industry to do its best... As per new technology, design and innovation, after six years of experience, I am coming to the conclusion that people are not going to change in the present system. I recently had a long discussion with the secretary and I will have a discussion with the NHAI chairman as well. We are going to appoint a committee from the private sector, for which we have already selected some names. We have requested Venkataramanan from L&T and Sabnis from Maharashtra PWD to be part of this committee. Also, if you know any expert who is outstanding and intelligent, and can conduct a research study of international standards, do tell us. We will formulate this body to focus on quality construction, cost reduction, and designing. This can be an independent separate section under NHAI. We will offer them all types of facilities; they can work full-time and even advise us. We will adopt their suggestions, on the basis of which decisions will be made. Road safety audit is also a major aspect. We face problems with DPRs and need to take stern action against people making DPRs. They are the culprits behind road accidents and related deaths. From signage and safety measures to all types of road markings, we need to change it all to match international standards. You have stated that steel and cement prices are rising and therefore the industry is getting tough. You have allowed a lot more supply to come in and have also mentioned that it should meet with the quality guidelines of the Bureau of Indian Standards. But there must be a process by which this quality is tested before the material is used. Otherwise, we may build up a lot of infrastructure at the expense of quality. We want to break the monopoly of the big people. I am against steel and cement cartelisation. I will request the industry to use soil stabilisation, plastic fibre in concrete, steel fibre in concrete, and reduce the usage of cement in concrete. There was a time when I was educating and instructing the ministry to make cement roads. But following the cartelisation and the attitude of this industry, I decided not to insist on making cement roads. And there is an increase in cost for no reason. The case with steel is similar. I am in constant contact with the Finance Ministry and PMO regarding the export of pellets and iron ore. We should stop the current export of 12 million tonne of pellets. Otherwise, the Pradhan Mantri Gram Sadak Yojana and Pradhan Mantri Awaz Yojana will face crucial problems. Even MSMEs are facing problems due to the rise in steel prices because that is the core material. These are the problems and we need to find a way out, otherwise it will be difficult for small people to survive.We will achieve 1,700 km of operational metro in 25 cities by 2025- Hardeep Singh Puri, Minister of State (Independent Charge) of the Ministry of Housing and Urban Affairs and the Ministry of Civil AviationIndian urban centres and cities have become hubs of economic productivity, infrastructure, culture and diversity. They have become the key drivers of economic growth and there is a need to sustainably and inclusively expand them given that cities are witnessing an exponential increase in the use of personal motor vehicles, resulting in severe traffic congestion and pollution. “Efforts need to be put in to remedy this situation. There is a need to focus on improving our public transport system, including metro rail, in the most efficient and sustainable ways,” observed Hardeep Singh Puri, Minister of State (Independent Charge) of the Ministry of Housing and Urban Affairs and the Ministry of Civil Aviation, at a webinar titled ‘Metro Vision’ on February 22, the first of the InfraNirbhar webinar series organised by Construction World & Swarajya.Puri highlights that till 2014, only about 248 km of the metro network was operational in five cities. With a consistent push by the government, it has expanded by over 469 km; today, 717 km of metro is operational in 18 cities and the goal is develop the metro system in 50 cities in the years to come. “We will achieve 1,000 km of the operational metro by 2022, the 75th year of Independence, and 1,700 km across 25 cities by 2025. More than 265 km of new metro lines—11.5 km in Kochi, 58.2 km in Bengaluru, 118.9 km in Chennai, 43.8 km in Nagpur and 33 km in Nasik—at a total cost of Rs.887.91 billion have been included in the 2021-22 Budget.” These new lines are expected to be operational in the next six to seven years. Additionally, several initiatives have been taken in the last six years under the Metro-Rail Policy to develop an inclusive metro system with multimodal integration and last-mile connectivity. Further, two new metro systems—Metro Lite and Metro Neo—have been conceptualised for smaller cities with peak hour, peak direction traffic (PHPDT) up to 15,000 and 8,000 respectively. The first Metro Neo system of Nasik, a 33 km network, has been included in the Budget. The first Metro Lite is proposed for the Rithala-Narela corridor of Delhi Metro Phase 4. In March 2019, the government approved the first 82 km regional rapid transport system (RRTS) corridor between Delhi, Ghaziabad and Meerut. This corridor is an innovative dual transit mode with RRTS and metro on the same infrastructure over 22 km in Meerut city.Here are excerpts of an interactive session with Puri, moderated by Pratap Padode, Editor-in-Chief, CW, and Aashish Chandorkar, writer and columnist.Chandorkar: From Metro Lite and Metro Neo, which technology will apply to which city? Do you see any execution risks, for example, issues between the Centre and the state governments? Puri: If it were left entirely to state governments, they would all demand regular metros. The problem is that the metro system is capital-intensive and one needs to raise finances. Most of these projects have financing from multilateral financial institutions. For example, we had to take a loan from the Japan Investment Cooperation Agency (JICA) for the Delhi Metro. Additionally, these capital-intensive projects need to be economically viable, because you have to pay the loan back within a stipulated period. While our politicians, all of us included, are very ambitious and want the best infrastructure, we shy away from the need to ensure that the project becomes economically viable. For cities where the PHPDT is 15,000, Metro Lite is suitable; and for up to 8,000 PHPDT, Metro Neo is suitable. In case of Metro Lite, the cost per km comes to about Rs.1.2-1.4 billion per km; for Metro Neo, it is `0.6-0.8 billion per km. But while developing these projects, one needs to anticipate future growth and plan accordingly.As for the issues between the Centre and states, there have been some tensions but I wouldn't say there are any major disputes. After I became a minister in September 2017, I'm only aware of one case where we had some tension with the state government, which I was able to resolve.  Padode: According to the Metro Policy 2017, we were supposed to have a comprehensive mobility plan and statutory body for the Unified Metropolitan Transport Authority (UMTA) to ensure an integrated approach in planning and management for seamless integration of the entire urban transport system. Unless there is a condition in the policy that no metro project should be taken up in a state until this unified authority is created as a statutory body and adequately staffed, this seamlessness and integration might become a problem later on. What is your view on this?Let me give you the facts. Tamil Nadu, Kerala, Madhya Pradesh and Karnataka already have a UMTA and we are insisting on this for every project we now appraise. But I think the overall approach should be to use encouragement, not the ‘unless you do this’ approach. Then, it becomes like the chicken and egg dilemma. So, I think it's a good start and we are encouraging other states to have a UMTA as well. Chandorkar: Is there a plan to extend any production or launch any other specific programmes to further incentivise Make in India?Well, the overall philosophy right now is Atmanirbhar. And I am very happy to tell you that metro lines made in India are being sold in Australia and Canada. We have 760 km of operational metro; in a few years, we'll have another 1,046. But that's not the real story. The real story is that you are moving into a situation where, by 2030, you will have 600 million people living in our urban centres and all of them will require transport. So we will have to be making 600-700 km every year. These additional metro lines will be the story and will materialise through domestic manufacturing. They will create opportunities for people to manufacture in India. To promote this further, we have standardised that minimum local content required for rolling stock is 60 per cent, telecommunications 50 per cent, signalling 50 per cent, and 90 per cent for elevated civil works, 80 per cent for underground structural works and 60 per cent for electrical-mechanical works. 64 items have been identified to be sourced on Indian soil. So there is a major process of indigenisation that we will encourage. And the Production Linked Incentive (PLI) scheme will further incentivise the Make in India initiative.Infra projects involve a leap of faith- Dr TV Somanathan, Secretary (Expenditure), Ministry of Finance, Government of IndiaInfrastructure projects cannot be funded like other projects. According to Dr TV Somanathan, Secretary (Expenditure), Ministry of Finance, Government of India, at least two of their characteristics distinguish them from most other projects in a modern economy: they experience the phenomenon of public good effect, and have long gestation periods. “Infrastructure projects actually involve a leap of faith and assumption that they will actually work in the last decision-making stage.”Dr Somanathan was addressing a webinar on February 23 on infrastructure finance, the second in the InfraNirbhar series. He added that the social return for infrastructure projects is often ignored by number-crunchers, although, in reality, the outcomes bear much higher returns than numerically captured internal returns. “Any attempt to estimate an Internal Rate of Return [IRR] or Net Present Value [NPV] from the point of view of the project developer is usually underestimated. Look at the NPV of the Chennai Metro Rail project, which I once headed. It is not over 5 per cent. Now, at that value, most parties might not find the project worth their time. But the social returns are usually 19-20 per cent. That’s why metro-rail projects are built. If only internal returns mattered, the Suez Canal would not have been built.”On viability, Dr Somanathan said infrastructure “almost always” requires some kind of government intervention, “even in a free-market economy”, because not all variables can be captured in risk or financial analysis. In his view, the following six ways will help resolve the funding challenges of infrastructure:Enhanced central public expenditure or central capital expenditureEnhance capital expenditure by state governmentsRecycle old public assets by creating a new institutional structure for structure finance Encourage private capital to flow into infrastructure in a bigger wayCreate a new institutional structure for structure finance; most important, the creation of a development finance institution (DFI)Take steps to stimulate the long-term bond market. The Budget announced a backstop facility for long-term bonds, which will help create a market-making institution to provide liquidity to bonds, other than government bonds. Government bonds are already pretty liquid. The idea is institution building, creating a facility that will essentially be a market maker and provide liquidity to corporate and infrastructure bonds from outside the government. Here are excerpts of an interactive session with Dr Somanathan, moderated by Pratap Padode, Editor-in-Chief, CW, and Dr Shubhada Rao, Founder, QuantEco Research.Padode: You said we have a 35 per cent increase in allocation for the NIP. I think the total increase in allocation for NIP this year is around Rs.7 trillion over 2020-21, given that over Rs.21 trillion needed to be spent in 2021-22. Have we accounted for all that within this 35 per cent increase or are there any other sources we need to tap?Dr Somanathan: No, the government's provision in the Budget is not sufficient to completely account for what is required on a year-to-year basis for the NIP. The total funding will come from the Centre, states and the private sector. This is broadly our proportion of it, but more money will undoubtedly have to come.Rao: The Centre and states provide the maximum buck to the bank. We see particularly that the Centre’s expenditure on capex has a 1.6 times larger multiplier compared to the capex of states. And the Centre’s capex has a larger multiplier on GDP by almost seven times compared to revenue expenditure. But a larger challenge—perhaps not as much from the Centre as the states—does emerge. Until December 20, the 17 key states have done a capex of only 34 per cent of the budgeted amount. Obviously, there are funding challenges within state governments. So how are we proposing to resolve this constraint?We are looking at ways of incentivising states to spend a larger proportion of their own budget on capital. And we are mindful of the autonomy of states; everybody wants state autonomy except when you don't like it. So, we continuously face the challenges of differing demands of different commentators—and, sometimes, the same commentator at different times. We are looking at what we can do that is appropriate. We do realise something needs to be done but please excuse me for not being specific about it. Padode: We are also looking at foreign capital via sovereign wealth funds, etc, to finance infrastructure. These funds typically look at projects that are at least ‘double A’ in terms of rating and most of our infrastructure projects fall short. What can be done to enhance rating?My conjecture is that one of the areas of operation of the new DFI will be credit enhancement. We are also willing to put some government money behind these initiatives. So if you have a low-rated project, we can upgrade the rating with a little bit of sovereign help in terms of first losses, some guarantees, or backup from either the state or the Centre. That's an important aspect if it's investment in a project. Another way, of course, is to use an intermediary to channel private funds such that the private funds come into a higher-rated institution, which then makes some investments in lower-rated institutions. These are some ways we would work on it and I think the new institution will be important in accomplishing these things.Padode: The other area that has probably not been accounted for in NIP is the unfinished, abandoned or stuck projects. These projects may need funding. Perhaps we could think of deploying a Mission Director of InfraNirbhar (sic) projects, on the lines of what had been done previously for stuck projects, to target these projects and get them completed. What is your view?There are two kinds of stalled or stuck projects. For purely government projects, we have a system called PRAGATI, which is actually chaired by the Prime Minister himself, that is actually effective. Second, we have private projects or projects that have a private element, and also some public interface. You’re right that there is certainly some scope for better coordination from the government side if it involves public agencies, state governments, environment and forest clearances and land acquisition. But we do have many projects where we don't have too much public interface and these are mostly stuck in the National Company Law Tribunal (NCLT). And here, there’s the new ‘bad bank’ initiative. I think a Mission Director can be helpful where the problem is largely governmental, say where the state government has suddenly withdrawn. These problems can be solved through administrative support. But if you have a project stuck because of solvency issues, it becomes a question of financial resolution. And delays often occur for financial resolution – as you know, we have 10 banks and if nine of them agree and one doesn’t, NCLT can’t pass consent orders.Rao: If one were to showcase the newly created DFI, how different would it be positioned from the earlier India Infrastructure Finance Company (IIFCL)?Well, I think it's going to be much bigger in size than IIFCL. So scale is one important dimension in which it's going to be very different. Second, I think this is now part of a more integrated strategy as an institution that aspires to create an infrastructure financing ecosystem in a way that, says the National Housing Bank (NHB) has done for housing or National Bank for Agriculture and Rural Development (NABARD) has done for agriculture.Padode: Asset monetisation will play an important part in gathering revenue. And this is very difficult in terms of bringing it from the public sector and putting it together. That’s why people are a little incredulous about it. So, we need to actually demonstrate how this will be done to win back the credibility of the asset monetisation programme. From our point of view, the divestment programme is more credible; asset monetisation is more difficult. What are your views?I fully agree with you that asset monetisation is more difficult because disinvestment is done through market-based share transactions where pricing is much more transparent. Other assets don't have that level of market price discovery. We have a history of prosecuting public servants who sell public assets in our country. So public servants have to be conscious of that. However, we also have to be conscious of the recent changes in law with the Prevention of Corruption Act, which was amended in 2018 to remove the section under which many honest public servants could be held guilty of corruption. The old section had said that if a public servant had taken a decision and someone had got a pecuniary gain without public interest, they might be guilty of corruption – even if there was no element of guilt, personal gain or bribe. That is no longer part of the statute book.In the Budget speech, we referred to the creation of a new agency to dispose of government land, which we said would be managed on private-sector lines. Precisely because we see these problems, we are attempting the creation of a new institutional structure and management agency, managed privately. That is another way we are planning to tackle it. The third thing is that the mere fact that we are saying it is also important. We have not previously said ‘privatise’; we have said it now. So, that reflects a key change. You may say you're waiting for the action Well, you're right to wait for the action and we intend to act.

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