What is preventing India from creating the necessary infrastructure for industry to operate efficiently? Will good infrastructure alone generate wealth in the absence of proper governance? Where have we succeeded in terms of creating infrastructure and where have we failed miserably? How has corporate India tackled this problem? Is there adequate funding for infrastructure projects? What needs to be done to overcome the various challenges? These were some of the issues that were taken up at the Business Today Power Breakfast held at Trident in Chennai on Tuesday under the theme 'Infrastructure is a millstone around industry's neck'.
In attendance were corporate honchos such as R Thyagarajan, founder of Shriram group, CK Ranganathan, chairman and managing director of CavinKare, R Chandrasekaran, group chief executive technology and operations at Cognizant Technology Solutions Corporations, Marc Nassif, Managing Director, Renault India, N Ramanathan, Ponni Sugars' managing director, Adhil Shetty, CEO, bankbazaar.com and C Venkat Subramanyam, founder director Veda Corporate Advisors. The discussion was moderated by Chaitanya Kalbag, Editor of Business Today and hosted by Amit Khare, General Manager of Trident Chennai.
Setting the tone for the discussion, Kalbag talked of how in India, the government, overwhelmed by its commitment to the social sector development, expects the private sector to share a higher burden in developing infrastructure compared to other countries. He also highlighted the dichotomy - despite sitting on huge coal reserves, the industry is forced to import coal at a higher cost. It has also led to other problems such as a runaway current account deficit which the government is struggling to tame.
India's infrastructure story has both good and bad aspects, said Chandrasekaran. "Our overall approach to infrastructure is a band-aid approach. We have no planning or preparation for long term growth." He referred to the case of Chennai Airport where new terminals are ready, but airlines have not been able to operate more flights because the second runway is not.
"We need a more holistic approach to infrastructure," he added. However, Chandrasekaran said the manner in which educational infrastructure has scaled up has been wonderful and has enabled the IT sector to grow rapidly. But the sector, of late, is not keeping pace with the need of the hour. "...We need more thinkers," he said.
Other challenges also emerged.
Ramanathan said that the sugar sector which predominantly operates in the rural area is struggling to find top grade engineers due to lack of proper education and health infrastructure. Debilitating power cuts has added to the sector's woes since it has affected irrigation.
"Agriculture infrastructure is as important as urban infrastructure but it has been constantly neglected," he said. The sugar industry, he added, sees typical cycles where surplus production and shortage alter. This cycle can be broken if the industry can export sugar during surplus. But that is physically impossible as the ports in the country do not have the wherewithal to handle even a few lakh tonnes of sugar. Brazil exports close to 3 million tonnes of sugar every year, he said.
Thyagarajan then took the discussion to another plane by wondering if a provision of adequate infrastructure alone is sufficient to generate growth. He pointed out that India's road infrastructure has improved tremendously in the last decade but that has not sharply reduced the transportation time of goods due to impediments such as Octroi and other inter-state bottlenecks.
"The issue is efficiency of the infrastructure and not the quantum of investment," he said. To improve efficiency, we need to reduce the rules and regulations. "To do that we need to reduce the size of the government. Every year thousands of pages of rules are added," he said. Thyagarajan recalled what an IAS officer had once told him - that government regulations are not meant for enforcement but for encashment.
Ranganathan agreed. "Government is more control oriented rather than being facilitator oriented," he said, elaborating on various delays in land acquisition or environmental related clearances. "Various arms of the government don't communicate with each other and projects are held up," he added.
Shetty said all was not lost on the infrastructure front. In his opinion, electronic infrastructure in the country was world class and bankbazaar.com's metrics matched those of Google. He also said that companies are trying to take advantage of this development to leap frog the otherwise difficult infrastructure situation.
Multinational companies like Renault have found ways to deal with this challenge. "We have designed our processes to be efficient. Our plant at Oragadam has a 3 wet painting process which reduces energy consumption significantly," Nassif said. Renault has also been developing products that address infrastructure shortcomings like stronger suspension to deal with poor roads or tuning the engine to handle poor diesel quality. But the company is at a loss when it comes to port infrastructure. "We are engaging with the authorities and get things improving," he added.
Thyagarajan said the bulk of the infrastructure responsibility lies with the government and what is needed is accountability in implementation. Otherwise the country will only see a peripheral improvement, he added. According to Nassif, public-private partnership is essential to get infrastructure development going.
Speaking on infrastructure funding, Subramanyam said that between 2004 and 2008, private equity funds invested heavily in infrastructure. At that time, they did not realise that infrastructure requires patient capital (capital that takes a couple of years to bring in returns) They also did not know that the cost of capital had to be kept low. The funds, he hoped, have learnt their lessons.
This is critical because the private sector has a large role. The 12th five year plan said that 48 per cent of the Rs 50,000 crore infrastructure funding will come from the private sector. "Bulk of this money will have to come from capital markets, private equity funds and multi-lateral agencies. We need to see a revival in the market for this to happen. Sentiment has to improve," he said. Attractive tax policies will help but they will not be effective as investors do not see stability in the tax regime.
(*An earlier version of the caption had incorrectly spelt Marc Nassif as Marc Nissaf. It has been now been corrected)