Friday, October 1, 2010

India will cross the line only in its own good time

By Kevan Watts | Published: September 30 2010

It is a truth universally acknowledged that India has an infrastructure deficit and that closing it quickly is critical for its hopes of maintaining the high growth trajectory of the past decade. The furore over the state of the accommodation in Delhi for the athletes at the Commonwealth Games has underlined this as starkly as ever. So what can be done?

The government has made infrastructure a central objective for several years with an ambitious target in its five-year plan of channelling $500bn into infrastructure from public and private sources. After his re-election last year, Manmohan Singh, the prime minister, asked Kamal Nath, the well-known former trade minister, to accelerate the building of roads. Most regular visitors will agree things are improving. Investors value highly emerging companies that are focused in building airports, power stations and roads.

However, the feeling persists that India is not being built quickly enough, a conclusion highlighted by the delays in preparations for the games ahead of this weekend’s opening.

There are many challenges to accelerating India’s development. A frequent topic at investor conferences is the availability of debt of the right maturity. Experienced bankers have identified regulatory changes that could assist in improving the financial choices for private-sector developers. However, no one really believes these changes would transform the speed of infrastructure development. The true obstacles lie elsewhere.

The division of responsibilities between federal, state and municipal government authorities and the extra engineering challenges of starting from a low base pose serious constraints. But the central issue is land.

For many Indians, their small holdings are central to their economic survival. Local politicians can exploit the value attached to land to block large projects that do not fit with their own political agenda. If the Tata group, with its long-term commitment to India, was forced to relocate its Nano plant from West Bengal to Gujarat, what chance is there for foreign companies or younger Indian companies to succeed in the face of orchestrated local opposition? This explains why so many Indian bankers will say the money can be found for projects if the land and regulatory approvals can be put in place; the challenge lies in the latter two conditions.

It is here that the contrast with China is so marked. When the authorities in Beijing decide a road or an airport is needed, the land is acquired or rather taken; it is cleared and building commences. But the government in Delhi struggles to implement decisions in a democratic system in which significant responsibilities rest with state and municipal authorities where local agendas may have different objectives.

While Indian business people may generally be right to argue business is now decoupled from politics, that can hardly be true once you need regulatory approvals for infrastructure development, approvals that inevitably re-engage the “licence Raj” mentality of public officials.

Most western business people are quick to lose patience particularly in the context of their experience in China. However, you cannot deny India its successful development of a political process that gives ordinary Indians a real voice in so many ways. India’s democracy is an extraordinary achievement for a vast populous country with considerable ethnic, religious and linguistic diversity. The inability of the authorities to remove people from their land should be applauded by those of us who live in systems that seek to balance the claims of the individual against the apparent needs of the common good.

Indians who want to retain their land understand that the rupees they can receive for it may not offer a passport to a better future. Simply sitting where they are at least offers a tangible basis for their future.

So perhaps we should accept India needs to build itself at a slower pace than many in the west might like. At least this way there is a chance that the infrastructure is built in the right places for Indians’ long-term needs. India will build itself in its own time and since Indians themselves have most to lose from missed deadlines, I am optimistic it will be on time as well.

The writer is a former head of Merrill Lynch in Europe and Asia who has just retired from Bank of America in Mumbai

Copyright The Financial Times Limited 2010