The much-hyped one-trillion-dollar investment required for infrastructure sector in India has been publicized by the government as a huge investment opportunity. This number looks good on Planning Commission papers and for discussions in conferences. However, little seems to have been done in policy-making circles as to how this number or anything close to it would be realized.Some basic numbers (as given in the 12th Plan documents) show financing gaps and they seem to remain as "gaps" with no solutions being attempted to fill them. Most people in the government and the industry seem happy talking about "The Debt Gap" rather than addressing the gap. The $1-trillion investment requirement for infrastructure sector in India for the 12th plan corresponds to an approximate debt requirement of $700 billion and the estimated debt gap has been estimated to be about $220 billion. If we try to understand this a bit deeper, the financing gap may be much more as it pre-supposes a reasonable level of equity investment, budget allocations and extra-budgetary resources which may not be there or may be under constraints depending on the fiscal position of the union and states and the prevailing investment climate in India. Approaching the same number from savings side, at an average 35 per cent savings rate and less than 20 per cent as financial savings, a $1.5 trillion GDP/economy could possibly create a total investment of $1.7 trillion from domestic savings in five years assuming a growth rate of 7 per cent. On the debt side, it is unlikely that the infrastructure sector would get the required share of debt in face of increasing demands on credit from other sectors. It is therefore imperative that new sources need to be found, both domestic and international. The discussions on issues of financing infrastructure in India is now over five years old and they have focused on lack of long-term finance, asset liability mismatches, and lack of capital/bond market participation. Historically, the government has tried to address access to finance issues for some specific sector by creating dedicated institutions for the sector in question, such as SIDBI, IREDA, and IIFCL and has assumed that the issues would get resolved by these institutions. Multilateral institutions have found these financial institutions to be convenient channels to lend to with sovereign guarantees, but have not made any attempt to resolve the more fundamental structural issues underlying the credit failures or an increase in the sources of financing. They have merely ring fenced their loans which may have led to some form of refinancing to the concerned sectors, but nothing more. Same has been true for infrastructure financing for many years. The last two years have seen several policy actions that have resulted in more concrete steps such as creating the enabling framework for infrastructure debt funds, dedicated regulatory framework for infrastructure NBFCs, and introducing instruments like take-out financing and bringing some of issues to the discussion table for other policy and institutional interventions.However, a lot more needs to be done to make the one-trillion dollar investment a reality. We attempt to suggest some interventions, which if carefully implemented could help in bridging the macro-level gap in financing infrastructure in India Create Gold Trading Corporation of India to monetize unproductive physical stock of gold in the country and get that into productive infrastructure investment. It is estimated that overall physical gold in the country is worth $950 billion, and even 10 per cent of this gold, if gainfully deployed could bridge a major share of the infrastructure financing gap. Higher demand for gold as a medium of household savings reduces the available financial savings and also increases current account deficits by way of increased gold imports, so there may be a reason to discourage gold consumption and make available more financial instruments with gold as the underlying such as Gold ETFs. There is need to think of feasible instruments such as modified gold deposit schemes which return the physical gold (or the market value of gold) plus an additional marginal return to the depositor. The physical gold could then be traded /sold in international markets and the foreign exchange could be channelized to fund infrastructure in India. One of the ways could be to set up a Gold Deposit /Trading Corporation of India for this purpose or use the existing state-owned trading institutions such as STC or MMTC, which would have the required organizational capacity and skills to do so. Besides, there is a need to revisit the earlier Gold Deposit Schemes that did not work very well. Create a state-owned Infrastructure Credit Guarantee Institution outside India to provide large-scale credit guarantee for infrastructure projects in India, especially for foreign debt and help overseas capital pierce the barriers of India' sovereign credit ratings. One of major constraints to attracting foreign capital into India is the sovereign credit rating ceiling at around BBB levels. While we may argue on India's distorted credit rating levels relative to those of European countries, given the prevailing situation there, it is a reality that we have to live with. On the other hand, there is a pressing need for institutional mechanisms to credit-enhance investments beyond that provided by India's sovereign ratings. For this purpose, the Government has needs to create and structure a credit guarantee institution outside India and held by entities with ratings such as global reinsurance companies and multilateral institutions higher than of India and /or well capitalized to take care of unexpected losses, which could be facilitated by setting aside a portion of India's foreign exchange reserves. (As an example, IIFCL,UK could be redesigned to serve the purpose).This institution would then enable infrastructure funds and finance companies in India to draw upon larger pools of global pension and insurance funds, sovereign wealth funds and access those pools of liquidity at the higher end of global investment grade ratings. Use guarantee products from multilateral institutions instead of borrowing more from them: Multilateral finance available from IBRD and ADB is very small compared to the scale of infrastructure investments required in India. Instead of plain vanilla borrowing, the government and other infrastructure financing institutions can use partial risk guarantee products to leverage sovereign guarantees to borrow on off-budget institutions for large infrastructure investments such as metro railway, power transmission and so on. This would help in increasing the total amount of external financing available for infrastructure by use of limited lending capacity of these institutions. Create appropriate institutions to unlock the land values in many urban areas through initial public investment in urban/social infrastructure: More institutional structures can be created on the lines of DMIC following up on the National Manufacturing Policy on the NMIZ concept, where public investment through off-budget SPVs in urban infrastructure which would lead to appreciation in land values. Government shareholding in these SPVs can then be divested leading to non-tax inflows to the state exchequer and increased public infrastructure investments in the next round. Create National/Sector-Specific/State-Level Infrastructure Equity Funds: In addition to facilitating project development and execution, infrastructure funds can help in borrowing in both domestic and international markets. Some states have made small attempts by way of trying to structure state urban funds. TNUDF can be followed as an example and suitable modified and improved upon to move these structures towards municipal bond banks which can further help in development domestic capital markets primarily for urban infrastructure. (The author is President & CEO, Financial Advisory Division, Feedback Infrastructure Services. The views expressed here are personal)
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Imagine a long drive from Cape Town to Cairo. This could be reality soon. The African continent is the biggest in terms of 54 countries. While there is a big disparity between the economies, several efforts are on to bring the countries together. Businesses in the regions are well integrated, but the policies are now coming into place.Issues like common visa, transcontinental transport links and free trade agreements are being worked out with renewed energy. Convertibility of currency is another aspiration. The west African sub-region is closer to common and convertible currency. It requires strong economic decisions in terms of macro economic stability.The fear of an Euro Zone like crisis is making policy makers study it carefully before implementing. Weak members of currency pact can bring down the entire region, and Africa is too fragile to take that risk.The risks though are negligible in transcontinental transport link, both in highways and railways. The aspiration is to have a Cape Town to Cairo connection. A trans-African highway that connects 26 countries and 590 million people is a reality being driven by the African Union. Countries are identifying the stretches that would be part of this grand highway.Several regional links are being worked on too. Highway corridors within west and east Africa are seeking public and private investments. An efficient logistics network would energise intra-African trade and make the continent an even more attractive investment destination.The home ministers of 15 South African Development Community or SADC countries are discussing the details of creating a common visa for the members. SADC region extends from Angola to Zimbabwe with South Africa and Mauritius as the economic engines.A common commodity exchange is being conceptualised too. Coffee could be a starting point with a shared coffee price index.Regional free trade agreements and customs union will be a reality soon. The East African Community, is working with other regional groups like SADC and COMESA (Common Market for Eastern and Southern Africa) for a triple FTA. EAC with five member countries has announced its own roadmap for a customs union.On many political fronts African unity is coming to fore. The leaders of all countries on the continent were united in their support for Ngozi Okonjo-Iweala, economy minister of Nigeria for the post of World Bank president. This was unprecedented in many ways, as they resisted pressure from the US to withdraw her name as a candidate.With such resolve, a deeply integrated African market is not too far away. As markets integrate, the next step would be an African Parliament.(Pranjal Sharma is a senior business writer. He can be contacted at pranjalx@gmail.com) break-page-breakMay 10, 2012When The Lion Beat The TigerMany new insights are emerging from WEF on Africa. The dialogue is changing from getting aid to boosting investment and trade. This growth curve is the same that India and China went through two decades ago. The key issue and matter of debate is the quality and quantity of trade and investment flows.In eight of the past ten years, African 'lion' economies have grown faster than East Asian tigers and even emerging economies like India and China. Africa is the youngest and fastest growing continent of the world.The FDI levels are rising faster than HDI levels. And the quality and direction of investment needs to evolve more. Donald Kaberuka, President, African Development Bank says that more than 85 per cent of FDI in Africa is going to natural resources. While financial sector and telecoms are receiving FDI too, sub-soil oriented investment may not be enough. This does not always create enough jobs, so investing in manufacturing is as important.Ethiopia is leading the way in bringing market linkages and boosting capability of agri sector. The Agriculture Transformation Agency, that reports directly to the Prime Minister, is ensuring that farmers have a fair and robust market to work with.Also investment in people to improve employability is still not enough. Private investment in social infrastructure is slow and will need policy support.The middle class is currently offering a new market. But the estimation is size is debatable because of lack of data. The size ranges from 200 million to 400 million. But since the diversity of economies is huge across African countries, the purchasing power varies. One aspect is certain though, the consumers are becoming increasing brand conscious. Newspapers are full of ads by global companies emphasising the logo, brand and Trademark of their products. Companies that dominate consumer minds now, will benefit in the long run.(Pranjal Sharma is a senior business writer. He can be contacted at pranjalx@gmail.com)break-page-breakMay 9, 2012Developing Ties My flight from New Delhi to Addis Ababa this morning was among the most interesting ones I have taken.The Ethiopian airline flight begins from Beijing, stops in Delhi to pick up some passengers and then drops every one in Addis Ababa. In the process, it connects three developing countries that are grappling with development issues in different ways.Blue collar workers from China shared seats with Indian traders and professional and passengers from African countries making the most of Addis' connection to the rest of the continent.The only western influence in the flight was the dated American movie that played to bleary eyed viewers.As the World Economic Forum on Africa begins, delegates will debate and witness the fundamental changes in the way African countries are growing and evolving.Civil society in many countries are far more vocal. While social media is picking up momentum, the mobile revolution is boosting confidence. I had a good conversation with Jeremy Hillman, director at Bill and Melinda Gates Foundation on development communication. Organisations like these are looking at new ways to have a conversation with civil society. Unless they help society achieve what the society wants, all development efforts will be undermined.Once a preserve of European imperialists, African countries are increasingly engaging with the developing economies. Thus a flight to Ethiopia is full of Indians and Chinese, watching Hollywood movies.(Pranjal Sharma is a senior business writer. He can be contacted at pranjalx@gmail.com)
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The government will wait a few days before reviewing a steep petrol price increase, Oil Minister S. Jaipal Reddy said on Friday, resisting protests and pressure from coalition allies to roll back the unpopular move welcomed by investors.Reddy said the government would review prices "within days, not months", after observing the impact of the 11 per cent price rise that led protesters to burn effigies of Prime Minister Manmohan Singh in rallies across the country."This is politics, and not physics," Reddy told a televised news conference in which he suggested the government would stick to its guns unless it became politically untenable.State oil companies announced on Wednesday they would raise the price of petrol by about 6.28 rupees a litre, excluding taxes, the first increase in six months as they sought to recover growing losses from higher global oil prices and a plunging rupee.Economists cheered the price increase, saying it showed the embattled coalition, paralysed for months by infighting and indecision, was taking action to rein in ballooning trade and fiscal deficits. It also raised hopes the government would tackle diesel, kerosene and LPG prices.In a sign of his support for the economic logic of the price increase, the minister said he had been pushing for a ministerial meeting on raising diesel and other fuel prices. He did not say when the meeting, due to have taken place on Friday, might now happen."Politics is the art of making the desirable feasible," he said.Petrol is not subsidised by the government, but state refiners, which dominate the market, had kept prices on hold despite an increase in crude prices.Diesel, kerosene and liquid petroleum gas, fuels used by the poor and in public transport, are heavily subsidised and make up a hefty portion of the ballooning fiscal deficit.(Reuters)
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India's crude oil imports from Iran declined by about 34 per cent in April compared with March, deeper than expected and the first evidence of New Delhi implementing cuts in supplies from the sanctions-hit nation under annual deals that began last month.State-run buyers are at the forefront of reductions, leaving privately-owned Essar the biggest Indian client of Iran, tanker discharge data showed, just as the US praised steps taken by India's refiners to back Washington's pressure on Tehran.The US has already granted waivers to the sanctions for Japan and 10 European countries but has left out China and India, Iran's biggest clients.US Secretary of State Hillary Clinton said on Monday India needed to do more and said a decision on granting a waiver was around two months away.India's total oil imports from Iran in April fell to about 269,000 barrels per day (bpd) from 409,000 bpd in March and from about 449,000 bpd in April 2011, the data made available to Reuters showed on Tuesday.Overall in the last contract year to March 31, 2012, India's purchases of crude from Iran were expected to be under 340,000 bpd, India's foreign secretary Ranjan Mathai said in March. Estimates compiled by Reuters based on company plans in July 2011 were for up to about 380,000 bpd.Indian refiners are expected to cut volumes from Iran by over 20 per cent in this contract year on average, Reuters reported in March.The shortfall is being made up with extra barrels from the world's biggest exporter, Saudi Arabia, as well as Iraq, which has leapfrogged Iran to be India's No. 2 supplier, among others.Clinton said Washington was working with New Delhi to find replacements for Iranian oil when she was visiting India this week."We commend India for the steps its refineries are taking to reduce imports from Iran and we have also been consulting with India and working with them in some areas on alternative sources of supply," Clinton said on Tuesday, while keeping up the pressure for "even more".Saudi Oil Minister Ali al-Naimi on Tuesday said the top oil exporter is pumping around 10 million bpd and is storing 80 million barrels to meet any sudden disruption in supplies.The Kingdom stood ready to tap into its spare capacity of 2.5 million bpd if more crude was needed, he added.Imports from Iran in January-April surged by almost a quarter to 405,000 bpd compared with last year when lifting of Iranian oil slowed due to payment problems caused when a finance conduit was closed under US pressure. n the first four months of this year, Iraq has emerged as India's second biggest supplier of oil replacing Iran, followed by Kuwait, Nigeria and the United Arab Emirates. Saudi Arabia continued to be the biggest oil supplier to India.India's overall oil imports in January-April rose about 10 per cent from a year ago as the country expanded its refining capacity. Total oil imports in April declined 5.7 per cent from March and 2.2 per cent from April last year, the data showed, after stockbuilding in February and March.India aims to raise its refining capacity from the current 4.3 million bpd to about 6.22 million bpd by 2016/17, while the local fuel demand is expected to rise to 152.94 million tonnes, Oil Minister S. Jaipal Reddy told lawmakers on Tuesday.ESSAR REPLACING MRPL In the January to April period, Essar Oil replaced Mangalore Refinery and Petrochemicals as the biggest buyer of Iranian oil. In April, Essar shipped in 119,200 bpd -- about 24 per cent less than March.Indian refiners have been asked privately by the government to cut Iranian oil imports by at least 15 per cent even though publicly New Delhi maintains it does not support unilateral sanctions.State-run MRPL imported about 19 per cent less oil in April from Iran compared with March at 90,200 bpd, the data showed, while Hindustan Petroleum Corp reduced its intake of Iranian oil by about 10 per cent to 60,000 bpd.Essar has renewed its annual deal of 100,000 bpd with Iran for this fiscal year starting April 1, while MRPL has reduced the size of its deal to 80,000-100,000 bpd compared with 142,000 bpd in 2011/12, industry sources have said.HPCL aims to buy 60,000 bpd oil from Iran compared with 70,000 bpd in 2011/12.Indian Oil Corp, the country's biggest refiner, and Bharat Petroleum Corp. Ltd. did not buy any Iranian oil in April. IOC had bought about 75,000 bpd in March. (Reuters)
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Lanco Infratech has got an order from the Supreme Court to resume development on a 50-billion-rupee township project in Hyderabad, the company said.The engineering and construction company had invested 25 billion rupees on the 100 acre Lanco Hills township, when a dispute with a religious group over ownership of the land halted work in 2011.Lanco, which had bought the land from the government in 2005, can now resume development and start selling finished homes, the company said in a statement late on Tuesday.Six residential towers are nearly complete and another six towers are under construction, it said.(Reuters)
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Gas output from Reliance Industries-operated D6 block, off India's east coast, is projected to decline to 20 million standard cubic metres a day (mscmd) in 2014/15 from an estimated 28 mscmd in this fiscal year, Oil Minister S. Jaipal Reddy said on Tuesday.D6 gas output has been declining for more than a year, resulting in a sharp fall in India's gas output and forcing the country to resort to increased imports of expensive liquefied natural gas (LNG) to meet the demands of its expanding economy.Gas output may average 24 mscmd in the next fiscal year starting April 2013, Reddy told lawmakers in a written reply to a question.He said gas availability in the country from local sources may rise to 113 mscmd in 2014/15 from an expected 104 mscmd in this fiscal year. In the next fiscal year it is projected to inch up to 105 mscmd, he said.(Reuters)
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Gas output from Reliance Industries-operated D6 block, off India's east coast, is projected to decline to 20 million standard cubic metres a day (mscmd) in 2014/15 from an estimated 28 mscmd in this fiscal year, Oil Minister S. Jaipal Reddy said on Tuesday.D6 gas output has been declining for more than a year, resulting in a sharp fall in India's gas output and forcing the country to resort to increased imports of expensive liquefied natural gas (LNG) to meet the demands of its expanding economy.Gas output may average 24 mscmd in the next fiscal year starting April 2013, Reddy told lawmakers in a written reply to a question.He said gas availability in the country from local sources may rise to 113 mscmd in 2014/15 from an expected 104 mscmd in this fiscal year. In the next fiscal year it is projected to inch up to 105 mscmd, he said.(Reuters)
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The UPA government came under intense pressure on Thursday from within the ruling coalition and protesters to roll back the steepest petrol price hike in the country's history, less than 24 hours after it took the unpopular decision cheered by investors.There had been signs that the beleaguered government was preparing to take the bolder step of cutting subsidies on other fuels weighing on its budget deficit, but after a day of uproar over petrol prices, an imminent move looked unlikely.State oil companies announced on Wednesday they would raise the price of petrol by about 11 per cent, the first increase in six months, as they sought to recover growing losses from higher global oil prices and a plunging rupee that again hit a historic low to the dollar during the day.But protesters in Andhra Pradesh, Bihar, Odisha, Jammu and Kerala burnt effigies of Prime Minister Manmohan Singh, set motorcycles on fire and held placards reading "Bring down petrol prices".In some areas, likenesses of Sonia Gandhi, the leader of the Congress party that heads the ruling coalition, were also set ablaze.Petrol is not subsidised by the government, but state refiners, which dominate the market, had kept prices on hold despite an increase in crude prices. Diesel, kerosene and liquid petroleum gas, fuels used by the poor and in public transport, are heavily subsidised and make up a hefty portion of the ballooning fiscal deficit.Economists cheered the petrol increase, saying it showed the embattled coalition, paralysed for months by infighting and indecision, was finally taking action to rein in ballooning trade and fiscal deficits.Adding to the sense of new momentum, a Finance Ministry official said a group of government ministers led by Finance Minister Pranab Mukherjee would meet on Friday to discuss the possibility of raising the price of diesel.India has not raised diesel prices since July 2011.But by the afternoon, as news of the protests spread, the Finance Ministry official was casting doubt on Friday's diesel price meeting, saying the political backlash was forcing a rethink."The increase in diesel price may aggravate the situation," the official said, speaking on condition of anonymity because of the sensitivity of the issue. A second official confirmed the meeting might not take place as scheduled.DisillusionedPetroleum Minister Jaipal Reddy cut short a visit to Turkmenistan, where he signed a gas pipeline deal with Pakistan on Wednesday, and was due to return home on Thursday evening, officials said. It was not immediately clear why he was returning to New Delhi early.Raising fuel prices is crucial if India is to reach its goal of cutting its subsidy burden below 2 per cent of gross domestic product from about 2.4 per cent in the fiscal year that ended in March. While a fuel price rise would add to inflation, it would also hearten investors disillusioned by the government's inability to push through reforms.In addition to the street protests, opposition politicans as well as some allies of the Congress called for a rollback in the petrol price increase.Television channels reported that some Congress party leaders were also not in favour of the increase and that a partial nationwide rollback of between 2-5 rupees was possible. The price increase announced on Wednesday was 6.28 rupees a litre, excluding taxes.A rollback would be humiliating for a government that has announced, then withdrawn, a string of policies from price rises to allowing foreign supermarkets like Wal-Mart to operate in India. The flip-flops have undermined investor confidence.State-owned Indian Oil Corp, the country's largest oil refining and marketing firm, insisted it was not under pressure to reverse the petrol hike, its chairman, R.S. Butola, told reporters. He said it would review prices again in June.Shops and businesses were closed across Kerala on Thursday in a strike organised by left-wing parties to protest against the price increase.In Odisha, political parties organised protests and some demonstrators roamed the streets on motorbikes. Government workers joined rallies and protesters forced some petrol pumps to close.The Biju Janata Dal, warned it would begin state-wide protests if there was not an immediate rollback of the price increase.At a Congress party news conference called to address the backlash, a spokesman said he hoped state governments, the central government and oil marketing companies could find "some kind of modus operandi" to mitigate the impact of the increase.(Reuters)
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