Money alone can’t make roads

Money alone can’t make roads

The good news is that the government has its mind set on improving infrastructure. The not-so-good news is that it still seems to operate in the same mindset.

India has known for a while that our roads and ports are clogged because, for one thing, funds are in shortage. So the government has resolved, after many committees and reports, that more funds must be made available. That was the idea behind setting up the Infrastructure Development Finance Co. Ltd, or IDFC, in 1997 and the India Infrastructure Finance Co. Ltd, or IIFCL, in 2006. And that was the idea behind Prime Minister Manmohan Singh’s March announcement that the 12th Plan would spend $1 trillion. But is that all the government has to do: arrange for more funds?

The government last week appointed a committee under HDFC chairman Deepak Parekh to look into the viability of a Rs50,000 crore debt fund to finance infrastructure projects— presumably because past financial arrangements aren’t working out. Some funding problems are, no doubt, tied to general financial sector reform: Roads and ports need long-term funds, that is, a deep corporate bond market. But lots of problems are infrastructure-specific.

Mint reported last week that the problem could very well be “the absence of viable projects and not necessarily shortage of funds"; consider that IIFCL money has been lying idle. Pension and insurance funds— natural lenders to infrastructure companies, since their money is long-term—shy away because, to start with, these companies’ debt isn’t highly rated. Foreign investors are in short supply because they can’t stomach the high risk involved.

These suggest more than funding issues. They get at governance and regulation.

We know that land acquisition is still murky and that bureaucracy is still oppressive. More than that, perhaps it’s time for India to re-examine its public-private-partnership, or PPP, model, which, in practice, has meant that the state aims to maximize the revenue it can gain, instead of ensuring efficient services. At auctions, bidders with a low risk profile but with better ideas possibly lose out. The projects only end up becoming riskier.

Such a rentier mindset surely benefits the state—and the winning bidder—in the short term. But unless this mindset changes, it’s the rest of India that loses out in the longer term.

Funding or regulation: what is to blame for infrastructure woes? Tell us at