The conception of the Gati Shakti plan and how it changed

This article, in two parts,addresses the origins of the Gati Shakti master plan, the flagship Rs100 trillion infrastructure scheme of the NDA Government, and its current challenges owing to financing and governance issues caused by a change in original project specifications. We will also examine what can be done using financial innovation and proven governance structures to bring nearly 1,800 projects within Gati Shakti back on track, saving crores of rupees in the process and creating over 36 million new jobs.Gati Shakti, as it is known today, was earlier called the National Infrastructure Pipeline (NIP) when it became a Government of India scheme on August 15, 2019.But before it became the NDA Government’s mega infrastructure plan, it was conceived as the ‘Construct India Mission’in the mind of a senior strategic planner at Reliance Industries, who was passionately interested in starting a construction boom in India and creating millions of new jobs.The 2019 triggerThe Congress manifesto –back in the 2019 general election – contained a mega plan called the NyuntamAay Yojana (NYAY), or Universal Basic Income scheme, under which Rs 72,000 per year would be transferred to the poorest 20 per cent of households in India. Additionally, the Congress promised to make job creation its No.1 priority, in the public and private sectors, by filling all 4 lakh Central Government vacancies before March 2020 and persuading state governments to fill their 20 lakh vacancies.As expected, the release of the Congress manifesto created a huge challenge for the BJP and its manifesto team was desperate for a BIG idea that could successfully meet the challenge posed.Perfect timing for a BIG ideaThe urgency within the BJP’s manifesto committee in April 2019 to come up with a big idea was,in fact, a major opportunity to launch a massive national development project that could simultaneously help double the size of the Indian economy from $ 2.7 trillion to $ 5 trillion and create 36 million new jobs in the construction and allied sectors.As stated earlier, a plan titled the ‘Construct India Mission’ had already been conceived in 2017 and been submitted to the Ministry of Commerce during the term of the earlier NDA government. It helped that this Rs 87 trillion plan and its capacity to create 36 million new jobs had been evaluated by then commerce minister Suresh Prabhu, and that he had recommended it for official support by the Ministry of Commerce as a national plan. Therefore, the Construct India Mission presentation and concept note were sent as an input for the BJP manifesto to Suresh Prabhu, with a copy to all members of the BJP manifesto committee.The note hit home and Meenakshi Lekhi (Minister of State for External Affairs) and Vinay Sahasrabuddhe (MP), both members of the BJP manifesto committee, wrote back to say that the Construct India Mission would be considered for inclusion in the BJP Manifesto. Thus, a critical first step was passed for avisionary initiativeto become reality by making it a part of the agenda of a major political party.The Rs 100 trillion infrastructure planA few days later, the BJP national executive in New Delhi launched the party’smanifesto, which contained a mega plan to invest Rs 100 trillion in infrastructure projects across the country over the next five years.With this, the BJP now had a plan to potentially double India’s GDP while creating millions of new jobs. Therefore, its plan was far more sustainable than the Congress’s Universal Basic Income Scheme, which had no viable financing source.First loss in translationHowever, an error occurred when these concepts were transcribed into the BJP manifesto. The financing plan for the Construct India Mission was designed to raise Rs 87 trillion for construction projects ($ 1.25 trillion at the prevailing exchange rate) over a 15-year period. The manifesto had reduced that to five years.The financial plan for the original Construct India Mission is presented in the schematic below. Its structure has the capacity to raise up to Rs 100,000 crore every few months after an initial ramp-up period.The big selling point in the original plan was itsself-financing nature with a large number of projects within it not requiring any kind of budgetary support or sovereign guarantee from the Government of India for the bond issues.The financing plan also had a 12-18 month ramp-up period before the first $50 billion India development bonds and green bonds could be issued. The ramp-up period was required as it would allow sufficient time for project documents to be prepared and the road shows in international financial markets to happen.The plan included five self-financing projects that had a combined value of over $230 billion.1. The Mumbai Eastern Waterfront2. The Kolkata Waterfront3. The Defence Industrial Corridor4. The Vivek anand Secondary Education Megaproject5. The Navy Nagar Reclamation, all designed by the authorBesides these five projects, the priority list also included the East Coast Energy Corridor, which will construct three to four new refineries, petrochemical complexes, LNG terminals and large hydrogen and clean energy giga factory infrastructure along the east coast. The standalone value of this energy security project is $96 billion, taking the total value of the six projects within the original plan to $326 billion.Unfortunately, these six mega projects got lost when government officials were tasked with executing the ruling party’s agenda.Second loss in translationIn November 2019, the author had direct interactions with the Ministry of Finance and once again the original Construct India Mission concepts were presented and a Cabinet note with the original financing plan was worked upon. However, government officials chose the ‘asset monetisation’ approach over the original urban equity withdrawal financing concept that could raise Rs 87 trillion. A more modest goal to raise Rs 6 trillion by 2025, by selling assets like Air India, toll roads, and stakes in PSUs, was adopted instead.Another critical specification within the original plan concerned project governance and control with an objective to prevent time and cost overruns.The original plan had adopted the British model of project governance, ‘The Infrastructure & Projects Authority (IPA)’, over the Chinese project control plan, as the British documentation was more articulate. This project governance model was shared with NITI Aayog and the Ministry of Finance.The British model is designed to simultaneously execute over 200 large projects with a combined capex of £ 500 billion. The British IPA is staffed with finance experts, engineers, procurement staff, project engineers and quality assurance specialists who ensure that hundreds of projects run according to the plan. However,when the NIP family of projects went into execution, government officials preferred to go with a model wherein they themselves would monitor projects from within the ministries.In this way, two critical project specifications were overlooked while executing the plan. These omissions have had serious impacts on the Indian economy and new job creation, as we shall see presently.Proven financing mechanismThe financing mechanism suggested within the original Construct India Mission has been proven in China since the late 1990s. In fact, a large part of the country’s city development projects has been financed by a combination of a land appreciation tax and unlocking value in urban land banks.This has helped China increase land supply in cities, bring down property prices and bring in billions of dollars in foreign investment since the 1990s. It has also created millions of new jobs in the construction and manufacturing sectors and helped expand the size of China’s central, provincial and municipal budgets. The Chinese, however, have been imprudent in some areas of the real-estate market, which is why they have a real-estate bubble today. But there is no doubt that the concept itself is sound.It may interest readers to note that Larsen and Toubro (L&T) is the first Indian company to experiment with the idea of unlocking the massive value trapped in urban land banks.In October 2015, L&T made an extremely innovative proposal to the Maharashtra government. The schematic below captures the main ideas within the L&T proposal for the redevelopment of a 93-acre-plot(MHADA colony) in Bandra East in Mumbai. Under the proposal, L&T would invest Rs 30,000 crore in the development of the plot, sell it for Rs 125,000 crore and would pay the state government Rs 70,000 crore in cash from the proceeds of the sale. While the project did not materialise mainly because additional FSI was not allotted, it was an extremely innovative proposal and involved the execution of some of the ideas that had succeeded in China.Most important, the L&T proposal showcased the potential value that could be unlocked in cities across India. If a 93-acre plot could unlock the same amount of capital that was needed to construct the undersea Chunnel tunnel between the UK and France, imagine the value that could be unlocked in projects such as the 2,800-acre Mumbai Port re-development and the 2,000-acre Kolkata port re-development, and by that token acrossall our metro cities.By some estimates, the value that could be unlocked across India’s cities would be of the order of $ 1.25 trillion. Exactly the same amount that is required to fully finance theNIP family of projects.Massive cost overruns of Rs 4.46 trillionThe NIP family of projects was renamed Gati Shakti because there have been massive time and cost overruns in hundreds of projects. Prime Minister Narendra Modi specifically named it ‘Gati Shakti’ to convey to government officials that he expected them to execute projects at a faster pace.According to a recent article, as per the Ministry of Statistics and Programme Implementation (MOSPI), outof a total of 1,779 projects, 559 projects have been delayed and for more than half (967 projects), the original or anticipated date of completion is unknown. The delays, the report reveals, range between one month and 324 months. As per the sanctioned cost, 480 projects suffered from cost overruns of 61.5 percent, which is Rs 4.46 trillion. This is more than the allocation for food subsidy this year and almost twice the total expenditure of the Gujarat budget for the year 2021.Pouring water in a desertThe Government intends to raise over Rs 6 trillion by 2025to finance Gati Shakti projects by monetising government assets. However, most of that intended capital raise has already been consumed by time and cost overrunsestimated at Rs 4.46 trillion.Monetising government assets take time. For instance, it took 20 years and three failed attempts to privatise Air India and at the end of that, the Government has been able to raise only Rs 18,000crore. Gati Shakti’s 1,779 projects, however, require Rs 100,000 trillion every few months. The current asset monetisation plan is therefore akin to pouring water in a desert.The MOSPI report proves that things can go wrong when original project specifications are altered without any consultation. If the original specifications on financing and governance had been followed, the Government would not have been facing a major capital shortage right now.Further, connecting 16 ministries to fast-track projects is not a solution as government officials are not project experts or engineers. Connecting 16 ministries will not create the 36 million jobs the Construct India Mission was designed to create. What is required is a proper project organisation manned by experts who are specifically trained to execute projects on time and within budgets.In part two of this article, we will discuss how the Gati Shakti master plan can be put back on track by bringing in new financing concepts and changing its governance mechanism.About the author: Ashish Puntambekaris currently an advisor to a few private equity funds and FIIs on green hydrogen, electric mobility and digital transformation within their portfolio companies. He has formerlyserved as vice president of strategic planning at Reliance Industries for over six years. He is an expert in sustainable project design and green finance and advises companies and banks on their green bond issues in international markets.