Morgan Stanley, a merchant banker, was close to mopping up $1billion for a fund to build infrastructure in India. Two other funds, led by IDFC and ICICI, have also raised funds for similar purposes.
Constraint on infrastructure investment has never been finance:
- India needs to negotiate these funds a vast and varied area of development that is essential to boost growth. But the overriding constraint on infrastructure investment has never been finance.
- The National Investment and Infrastructure Fund is yet to invest any funds. Infrastructure development in India has moved in fits and starts. Infrastructure accounts for the bulk of bad loans that stymie India’s banking.
- Timorous politics that shrinks from asking people to pay for the power they consume has crippled the power sector. More money cannot fix it.
- Things like roads, power plants, airports, towns and so on require land, a scarce resource in densely populated India.
- Much infrastructure is held up by disputes over land acquisition, environmental damage, displacement of indigenous people, private contractors looking to cut corners and, of course, graft and sloth in ministries, departments and state undertakings.
- Periodically, these tensions boil over as political turmoil, paralysing administration and decision making.
- The way out is not to pump more good money after bad, but redress institutional shortcomings that dog these projects.
- Central and state governments can assist private developers by speeding up approval processes, cutting red tape and setting up dispute-resolution mechanisms between different stakeholders in projects.
- The new fund will receive $150 million from Beijing-based Asian Infrastructure Investment Bank (AIIB). Of around 30 projects approved for investment by AIIB, 11go to Egypt, mostly to solar power in public-private partnerships; India’s share is three projects, the same as Indonesia’s. Clearly, investors like shovel-ready projects, not those whose prospects are shrouded in uncertainty. What infrastructure in India needs is political boldness and institutional deepening, finance is secondary.