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BW Businessworld

Expand The Volume Of Finance

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Asian Development Bank (ADB) has been a long-term infrastructure development partner of India’s. The Manila-based bank has lent a cumulative $31.5 billion to the country so far.

In an interview with BW’s Joe C. Mathew, M. Teresa Kho, country director, ADB, shares what she believes should be the priorities of the new government in reviving the infrastructure sector

What should the next government do to address the myriad problems that slow down India’s infrastructure development?

If we look at the infrastructure sector, about a third of the projected $1 trillion investment under the 12th Five-Year Plan is targeted at energy and another third at transport (roads, railways, ports, airports and mass rapid transit systems). Addressing infrastructure deficit in these sections is critical to a growth that is high, inclusive and sustainable.

The new government should note that while investment in infrastructure has increased in recent years, sectoral progress has been uneven. While telecom and airports have been successful in attracting investment for infrastructure, others such as roads, railways and ports have lagged due to a variety of implementation problems.

Improving availability of long-term finance, implementing policy and regulatory reforms, and improving infrastructure project design and project management capacities can only help speed up infrastructure development.

How can we tackle the lack of funding for the sector?
India needs to address infrastructure financing by dramatically expanding the sources and the volume of financing. Developing a deep corporate debt market is a solution. Innovative mechanisms such as ‘take-out’ financing, partial credit guarantees and infrastructure debt funds have been introduced, but they need to be mainstreamed.

The 12th plan estimates that about 50 per cent of the proposed investments in infrastructure will come from the private sector.   

In the power sector, most of the new capacity that was added after 2009 is either stranded or running below capacity due to a lack of fuel. State distribution companies do not have the money to buy expensive power. What should the government do? 

Clearly, India needs a more diversified energy mix, so that generation is not dependent on a particular type of fuel. This would mean more focus on renewable energy initiatives in the long term. Also, it is equally important to restore financial viability of energy distribution companies. This includes addressing transmission and distribution (T&D) losses caused by inefficiencies in metering, billing, revenue collection and pilferage. The establishment of state regulatory commissions, unbundling of state electricity boards, strengthening T&D and increasing consumer metering are essential. 

How can we address the problem of connectivity?
Development of corridors through multi-modal connectivity — intended to support manufacturing, urbanisation and deeper integration of India into global production networks — is the need of the hour.  One should also look at improving sub-regional road connectivity and the efficiency of the international trade corridor by expanding roads in the north-eastern region, a key strategic thoroughfare integrating South and South-east Asia.

In the transport sector, one needs to support development of ports, access roads in select economic corridors and mass transit systems in key urban centres.

Should we prioritise some sectors for faster growth? What else can we do to propel growth?
Transport and energy, along with the urban sector, are certainly key to reducing infrastructure deficit in India and propelling faster growth. Growing urbanisation in India presents a huge challenge going forward. The manner in which India manages its urbanisation process will have significant implications on growth and inclusion. 

The promotion of dynamic economic corridors between major urban cities holds much promise. However, timely implementation of infrastructure projects remains a big challenge. The government should strengthen the capabilities of the executing agencies, so they can efficiently plan and implement projects. Setting up well-staffed project management units within executing agencies, improving project management through best practices in contract management, monitoring of progress, introducing better accounting systems and audit requirements are important.

What is the way forward for India in infrastructure development?

India needs to multiply efforts to cut down infrastructure deficit and spur growth. Developing a robust infrastructure requires concerted and sustained efforts from both public and private sectors. Multilateral development agencies like ADB can pitch in by partnering with the government and the executing agencies to enhance capabilities in project planning and implementation. 

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(This story was published in BW | Businessworld Issue Dated 16-06-2014)