In infrastructure Demand Is Outstripping Supply By A Wide Margin: Srivatsan Rajan, Bain & Company
At a session at the India Economic Summit 2017 organized by the World Economic Forum and CII called Building Blocks for the New India, India’s crippled infrastructure and the cost that it imposes on society and the inclusive agenda was discussed with Srivatsan Rajan, Chairman of Bain and Company moderating the session. Dimensions discussed included, defining new means of public-private collaboration, leveraging diverse funding mechanisms and harnessing new technologies and innovation.
“It always feels like demand is outstripping supply by a wide margin. How can one gain confidence that there really is forward planning on the what and where of infrastructure decisions?”, asked Rajan, to which Chandrajit Banerjee, Director-General of the Confederation of Indian Industry (CII) said “Land clearances have been a cause for the delay for many projects, and these delays are the main reasons for the demand-supply gap. India being federal in structure, we see state governments having a different bunch of rules and clearance processes. Historically this has been an important challenge. Grievance redressal has also led to a lot of our projects running behind schedule.” He also went on to add, “Entire structuring of PPP over a period of time has also been a reason for the demand-supply gap. The present government has to deal with issues like streamlining and land clearances. The factor of trust is very important when working in PPP mode. Lack of trust has led to dispute and grievances, because of which India has not been able to keep pace with the type of infrastructure required”. He also added, “We need a regulatory framework to kick in. One of the cases is the point is RERA, and we hope that’s successful. The regulatory framework being successful would lead to demand-supply gap being met within the timeframe we desire. The framework is in place when we are doing our forward planning”.
“You may be in a Ministry which may not have been relevant 20 years ago”, said Rajan to Hardeep Singh Puri, Minister of State (IC) for Housing and Urban Affairs, Ministry of Housing and Urban Affairs of India. “Percentage of urban population has been growing. One of the major initiatives of the government is smart cities”, said Rajan. “Like most Indian citizens, I have had a healthy streak of cynicism of how urban areas are evolving. When we became an independent country, 17% of India lived in urban areas. Most of India lived in rural areas. Over several decades, the contribution of agriculture to overall GDP has been declining. Now it is below 20%. With 60% of Indians living in rural areas while the income from agriculture sector is declining, while income from services and other sectors is going up, well that’s not a terrible situation. Two processes are given, globalization and urbanization”, said Puri. “Many people have told me that urbanization in India is slow, but it’s unfair to compare it to the urbanization in highly developing countries. After the 2030 SDG Agenda is completed or near completed, you will have roughly 50% of India living in urban areas. India is and will be an urban nation. You are on the cusp of the fourth Industrial Revolution, it’s all about urban services. Three of the PM’s flagship programs deals precisely with the questions being discussed.” added Puri.
“If we build a toilet, will people use it? You have to encourage people to use it. Sanitation is more important than political freedom, Mahatma Gandhi said. You require a behavioural, lifestyle and mindset change. You have to start with segregating waste at the point of production. We have to increase our potential of bio-mechanization, the waste to energy nexus. It’s a shame that manual scavenging still exists after 70 years of independence”, said Puri. He also added, “Our cities are under stress. In cities, you have large concentrations of people living there. You have to have urban rejuvenation, resettlement, by building affordable housing. The cynicism I had about smart cities I am losing. You will begin to see the results of the smart city planning by June 2018, similarly for Housing for All. You need co-operation and collaboration. I would like to see private sector step in, in a big way.”
Bringing an outsider’s perspective, Keiko Honda, Executive Vice-President and Chief Executive Officer, Multilateral Investment Guarantee Agency (MIGA) said, “Mid-term to long term, this country has a lot of potentials. It has great demographics. Almost all middle-income countries have the problems of urbanization. India has about 300 million people living without power and over 70 million people living without access to clean water, infrastructure has to be strengthened. But this gives a big opportunity for business and employment”. She also added, “A lot of infrastructures is financing problems. What is missing is investable projects. Private players feel a risk in getting into infrastructure. I am always encouraging private investors to slice their risk”.
With respect to the power sector, Sumant Sinha, Chairman and Chief Executive Officer, ReNew Power Ventures Pvt. Limited, said “We have large parts of the populations which are still not electrified. If we look at the power sector at the holistic level, we will see that 25 years of reforms have left the power sector aside. People in India still believe that the politicians are in control of the price of the power. We need to break the linkage in peoples mind about who controls the price of power”. “We need outright privatisation of the distribution sector. We need to try to get this power aligned in a way which leads to cheaper more efficient power and a higher quality of life. We are not only over-regulated but also an over-governed country”, added Sinha.
From a finance point of view, Bunty Bohra, Chief Executive Officer, Goldman Sachs Services Private Limited, said “The solution is simple. Complete the projects on time, make the bond markets viable. I am blindly bullish on the prospects of India. Everyone who has been to India has seen a shortfall of infrastructure.” Bohra also added, “Credit access is a big shortfall as well”.
