Time For Some Bold Steps – A National Renewal Fund ?

In this interview with Bloomberg Quint, Vinayak Chatterjee from Feedback Infra suggests some bold steps to revive the struggling economy. 

Lockdown / unlockdown confusion is affecting the pace of infrastructure work across the country.  Getting permissions from local labor authorities is a bit difficult. No clear guidelines across various states, so work is getting resumed in patches. Having said that, 40 to 50% of pre-covid infra work has resumed.

Reality Check on Indian Infra

Govt intent is serious – with respect to liquidity, funding, arbitration. But ground reality is different. Old habits of delayed bills, lumpy receivables are not going away immediately. Post covid – our attitude towards infra has to change. Use infra development as a tool to uplift people from poverty, create employment & revive materials demand. 

Government response is good. But too many interventions on the monetary side. Monetary actions can improve the supply side, but that’s not a major challenge for now. India needs fiscal intervention. Unemployment & demand can come only via fiscal intervention. This is where a massive push to infrastructure is a must.

There will be 7 to 10% contraction in the GDP for FY 21. We were growing at 6-7% earlier. GDP will have a swing of 16% !  No-one is prepared for this kind of a shock. We are still thinking within the box. It’s an extraordinary situation, India needs a war room response ! 

Out Of Box Thinking – Think Tank Suggestions to Govt

In the regular course of the economy, union budget, tax collection etc have their importance. But in today’s times, we need NRF – national renewal fund. ( like Frankling Roosvelts new deal during 1933 depression, hitler making autobahns during late 1940’s ). Suggested allocation to this fund can be at 14% of GDP to have any meaningful impact. ( 30 lakh crore fund, a 50 year fund outside consolidated fund of India )

Proposed Breakup Of The 30 lakh cr NRF

• Discom revival – 2 lakh crore
• Infrastructure – 10 lakh crore
• Misery alleviation / Basic Food Shortages etc. – 3 lakh crore
• Healthcare Infra – 1 lakh crore
• State Support – 6 lakh crore
• Financial / Banking Recap – 5 lakh crore
• MSME – 3 lakh crore

How To Mobilize Funds 

60% should be domestic funded. RBI should print & subscribe. 40% from friendly overseas development institutions.

FDI In Infra

We could not attract FDI in greenfield assets. This is the time to do that. Whatever FDI came in recent years, it came only in brownfield assets. But concerns even on that side ( whether road traffic will grow, stagnating electricity demand growth issues ) India has the potential to attract big ticket investments from overseas as liquidity is sloshing around. For example – Bullet Train project – 1 lakh crore is coming in for a single project. We can easily get 12 to 18 lakh crore for NRF. We have enough goodwill around the world.

Private Sector In Infra

Infra development companies were leveraged even before COVID. No one is in the mood to put on fresh capex. Everyone wants to do EPC led by bank financing. No one wants to invest, but interested in doing EPC i.e. thekedari work. Government has to do heavy-lifting, and it can not be done from consolidated fund of India.

DFI- Development Finance Institute

Government has formed a committee to plan financing of the national infrastructure pipeline. We have institutions like-

• Power sector – PFC, REC
• Railways – Indian Railways Corporation
• Urban Development – HUDCO
• Agri – NABARD
• Infrastructure – NIIF

Option 1 – rather than creating a new institution, solve problems of the existing institutions & smoother their functioning  

Option 2 – create a new institution with Mammoth balance-sheet. 

Everyone agrees with the need. We have fired all bullets on the monetary side. What instruments do we have now ? We need a sledge hammer to bring in V shape recovery. Else the consequences are dangerous ! Demographic dividend is about to become a liability if we don’t act now.

So Called Green Shoots 

What greenshoots ? Economy was locked up for 2 months, naturally initial data will look good as the activities are resuming & trade channels are being re-stocked. If economy is contracting by 40% in Q1 & 10% during full year, green shoots are not going to move the needle. We need a big bang / sledge hammer! 

Is there any alternative to NRF ? Acceptance of the idea should come fast. We are in a deep hole. Policymakers need to show some speed. Intense discussions are happening in PMO & finance ministry. They are in touch with the on ground reality. Let’s hope that the much needed changes area pushed through.

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