My letter in Financial Express of 28th April 2010
I read the following editorial in FE of 22nd April :
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FE Editorial : Boost to infra
The Financial Express
Thursday, Apr 22, 2010
The measures taken to boost infrastructure investments in the annual credit policy will go a long way in further accelerating and extending fund flows into this crucial sector.
Particularly welcome is the move to liberalise the availability of bank funds to large-scale infrastructure projects by treating annuities from BOT projects and toll collection rights as tangible securities. Equally welcome is the move to reduce the provisioning for substandard infrastructure loan accounts from 20% to 15% under certain conditions that will allow banks to escrow cash flows and also secure a clear and legal first claim on such cash flows.
Similarly, the appetite for infrastructure bonds will also be buoyed up by the move to allow banks to classify their investments in non-SLR bonds issued by infrastructure companies in the held-to-maturity category from the mark-to-market category. These steps will not only improve the availability of bank funds, which have shot up by an astounding 42.3% to Rs 1,08,757 crore on a year-on-year basis in the period ending February 2010, but also improve the working of the corporate bond market.
This will boost private participation in infrastructure projects, which is crucial for sustaining long-term growth. This is especially the case as India’s potential on this count is substantial; the country has already emerged as a world leader in the implementation of infrastructure projects with private participation.
Most recent numbers from across the globe show that India has registered impressive gains in investment commitments in infrastructure projects with private participation going up from $20.6 billion in 2000-05 to $24.7 billion in 2006-08 in the telecom sector alone. Gains were much higher in the transport sector, where such investments accelerated from $4.3 billion to $19 billion, and also in the energy sector, where they shot up from $8.4 billion to $28.5 billion during the period.
This is in sharp contrast to the trends in other countries like Brazil and China, where the investment commitments in infrastructure projects with private participation came down in the latter half of the decade. The only other major developing country that has been able to improve private participation in infrastructure projects was Russia. But Russian gains were only in the energy segment where the fund commitments increased more than twelve-fold. However, India still has a long way to go before it can rest on its laurels, as the demand for private sector funds is expected to grow exponentially, given that overall funds for development of the infrastructure sector are expected to shoot up from around $500 billion in the Eleventh Plan period to more than a trillion dollars in the next.
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Here is what I had e-mailed to FE in response to above :
Dear Sir,
This refers to your Editorial On Infrastructure ( “Boost to Infra” FE 22.04.10).
While appreciating your views,I would like to make a point that there are several problems related to financing of infrastructural projects.
These are as under :
a) Demand for investment is voluminous but there has been a lack of interest from private sector in general as observed from past trends so far.
b) Weak tariff regulation, dis-honouring of concessional committments made by state/central Governments,high level of corruption,lack of transparency in governance, extremely poor accounting practices and disclosure norms are some of the other major irritants.
c) The projects have to be bankable and users must have not only willingness but also ability to pay for usage of the infrasructure.
Merely relying on Government guarantees and subsidies are not adequate measures.
d) The appraisal of such projects needs to be done very carefully to ensure that income generated during the entire life time of the project is adequate to take care of the interests of all stake-holders—banks,consortiums,private sector, public sector etc.
e) They are very time-consuming projects and may take anywhere from 10 to 20 years for completion and as such normally banks are quite hesitant to finance such projects involving long term funding since if repayment of loans to banks doesn’t come in time,there can be serious mismatch problems and consequently it may lead to unmanageable NPAs.
f) Environmental and other such clearances and NOCs from concerned departments take a very long time to arrive and this can have a telling effect on the project imlementation schedules.
g) Getting possession of land,paying compensations to land owners, re-settling the displaced / to be displaced population of the area, are also other problem-areas which can lead to several issues leading to questioning the basic feasibility / viability of the projects if delayed beyond reasonable time.
Hence the Government,while clearing the way for booster dose for backing the infrastructure sector,needs to do a critical analysis of all such major problems to avoid the projects becoming a drain on the economy by turning into proverbial white elephants.
– J S BROCA
NEW DELHI
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Here is what FE finally published in its “Letters To The Editor” column of FE on 28th April 2010:
Letters to the editor
The Financial Express
Posted: Wednesday, Apr 28, 2010 at 2038 hrs IST
Updated: Wednesday, Apr 28, 2010 at 2038 hrs IST
Posted: Wednesday, Apr 28, 2010 at 2038 hrs IST
Updated: Wednesday, Apr 28, 2010 at 2038 hrs IST
Apropos of the edit ‘Boost to infra’ (FE, April 22), I would like to make a point that there are several problems related to infrastructure projects. The demand for investment is huge but there has been a lack of interest on the part of the private sector in general; weak tariff regulation, dishonouring of concessional commitments made by governments, high level of corruption, lack of transparency, poor accounting practices and disclosure norms are also some of the major irritants. The projects have to be bankable and the users must have both the willingness and the ability to pay for using infrastructure.
JS Broca,
New Delhi
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Readers will observe that the abridged version of my letter published by FE has left out many important and relevant points under the garb of “space constraints” !!
That’s an example of Freedom Of Expression !! (?)
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Dear Readers,
If you wish to read the article on line then please go to :
http://www.financialexpress.com/news/fe-editorial-boost-to-infra/609468/0
J S BROCA
NEW DELHI
27th May 2011
Dear Friends
In case you wish to read my letter on website of FE
go to the following link :
http://www.financialexpress.com/news/letters-to-the-editor/612043/
J S BROCA
NEW DELHI
17TH MAY 2011