India could follow infrastructure-led growth to turn the investment cycle, Railway Minister Suresh Prabhu said at the Business Standard Infrastructure Summit 2015 on Thursday.
“When we create infrastructure it is not for tomorrow, not even for today, but it takes care partly for yesterday. That is why the deficit keeps rising,” Prabhu, among the principal policy formulators for the infrastructure sector in the Narendra Modi government, said.
Elaborating on this theme, Petroleum Minister Dharmendra Pradhan pointed out if the power sector had not been opened up through reforms initiated in 2003, India would still have been in darkness. Had independent power producers not set up projects, public-sector undertakings (PSUs) alone might not have been able to shoulder the load, he added.
Financing infrastructure would need bold measures, making instruments more important than institutions, Prabhu added while inaugurating the summit. This could mean opening up funds available with the Employees’ Provident Fund Organisation for use in infrastructure, he said.
The suggestion found support from Santosh B Nayar, chairman and managing director of India Infrastructure Finance Company, later in the summit when he said 2-3 per cent of the incremental corpus of the EPFO could be used to meet the needs of the core sector.
Prabhu made a case for tapping into the pension funds of Australia, Canada and other countries and attracting sovereign funds from China and West Asia. Australia’s gross domestic product, for instance, is less than its $ 2 trillion pension fund corpus. “China has foreign exchange reserves of $ 4 trillion, which they are putting into the US treasury at 1 per cent interest rate,” he pointed out.
He also said there was a need for PSUs in the infrastructure sector to free up assets by capitalising them and borrowing money for new projects. Citing NTPC, the country’s biggest power producer, Prabhu said, “Why not make sure that existing assets free from debt are capitalised to make more money. It is all possible. We really need to make sure that we bring a paradigm shift in this.”
The idea did not find favour though with Arup Roy Chowdhury, NTPC chairman and managing director. He said NTPC had provided the government returns worth Rs 40,000 crore, which might be reduced if equity in old projects were divested.
Prabhu, nevertheless, said PSUs could be the engines of growth. “The Japanese economy is contracting but the private sector is not investing. In India, PSUs have a huge cash flow but are depositing money in banks for 5-6 per cent interest. Why can’t we use PSU as engines of growth?” the minister wondered. The newly set up NITI Aayog could create a framework for facilitating such investments, he said.
Relying on the public sector alone would not suffice, Prabhu said and added India had enough private sector ability and growth could take off from there. “For the first time we are developing a model. Let us not get overawed by the challenge.” All stakeholders, whether regulators, banking systems, developers, policy makers and state governments, must be aligned, he added.
On the ground, projects faced land acquisition issues. Ravi Uppal, managing director and chief executive officer of Jindal Steel & Power, differed with Roy Choudhury on the advantage the public sector had over private companies in land acquisition.
Pradhan pointed out his home district of Angul in Orissa had given up 25,000 hectares of land for mining and other projects. He said villages in Chhattisgarh might have rejected coal mining in their area, but the Centre’s policy of sharing proceeds with state governments could help in the uplift of local people.