The Competition for Infrastructure and Public Private Partnership Projects- a macro view
By: Amit Bhushan Date: 27th May 2014
The competition for Infrastructure and PPP projects is twisted by players with a leeway with the politicians who connive/ influence bureaucrats egged by politicians into twisting rules to accommodate business’s interests. What has ensued is a rush to corner projects so that corporate can expand its business profile and fall in the legion (or builds such an image) of a systemically important and weighty company with ability to cause impact on the investment environment, so to say. Then this company can put forth arguments to the government, some of which may be true shortcomings of the plan while others may be brought in to justify the business interest of the corporate and jack up profits and valuations. Any shocks to such investments must be taken care by banks especially those controlled by the government, to ensure minimal damage to economy and country’s competitiveness. Besides lack of fair competition, it impacts most of the other sectors in a major way.
The Small and Mid-sized segments have little chance to compete in this manner and if they still manage to get large sized projects stretching finances and other resources beyond limits, then chances are ripe they will be taken over and assimilated by large conglomerates egged by supporting factors for the same. The oligarchy thus continues to wield its influence in the powerplay and their may be very few players who may manage to break the stranglehold that too mainly in the emerging new sectors. Very few entrepreneurs creep into this play that too not without support from politico-bureaucrat nexus and often this may be under even more murky circumstances.
The kind of competition ensures that we do not have robust and competitive infrastructure facilities and therefore adversely tilted playing field for manufacturing and services companies. The dependent sectors are forced to cough up high rent or premium pricing on land and facilities which cascades into costs to the customers. Any pockets of competition are systemically thwarted to ensure the stranglehold. We therefore have successful entrepreneurs out of Non-Residents, however almost none within the country barring in emerging sectors like IT, Bio-Tech, Non-renewable energy etc. which are still profitable due cheap professionals being available, though this fact is not acknowledged by industry/entrepreneurs who have complaints about costs and quality. To be fair, our tax holidaying policies and industrial relations laws like provision for benefits monitored through inspectors and union-related provisions have also played their supportive role to encourage units in other sectors to play it small and remain outside the ambit of organized sector rather than just the competitive structure of the larger economy.
The manufacturing sector for physical products which require abundance of land resources (with access to sanitation, water, power, roads, rail-links etc.) as well as free access of raw materials/minerals and markets is impacted badly by twisted nature of competition. This, coupled with ‘Free Trade access’ from competitive countries which need to be facilitated with lowering of tariff and non-tariff barriers has put paid to the entrepreneurs dreams to make it big in the traditional manufacturing sector. A testimony to this fact is that one can find large units in barren village lands which are connected by roads. This is because entrepreneurs preference for such areas rather than developed industrial clusters for reasons sprinkled in the article. For services sector, it affects to lower wages, increased taxation and higher capital related entry barriers. This therefore suits an oligarchy but not all players’ especially new entrepreneurs.
With different segments of government at center and state having their own priorities and little coordination serves as a scenario of ‘growth paradise’ for the land and infra sharks who ensure that simultaneously not too many opportunities are competing for investor’s interests so that prices remain high. This serves them well as they can share the benefits with the politico-bureaucrat nexus on regular basis and maintain their stranglehold on the economy. Whatever foreign investors do pour into such state of affairs is because of the large size of population and economy with slow pace of transformations that makes some sectors attractive at a particular juncture which may be of interests to the investor even at premium ‘cost of entry’. It off course helps that over the years land prices have remained on an upwards trajectory so investors can exit their land holding for profit, if required (subject to exit policy off course). Lack on action on land grabbers for industrial land who enjoy political support; is one of the barriers and this may include lack of policy to transfer such land to other units in case of failure of industry. Instead of support for such land, changing hands seamlessly; we support conversion of such land into commercial use at behest of investor for obvious reasons other than promotion of industry. Our tax holidaying policies, changes in power and water situations allow additional excuses which may also include staged labour related pangs for the unit. The entrepreneur continues to hold land to exit at huge profits possibly after change in land use under supportive policy makers.
If the traditional manufacturing sectors are required to be supported then the center and state governments need to join hands to develop 2-6 large industrial land clusters in each state with complete infrastructure so that the same may be competitively available to manufacturers outsmarting the sharks in the field whose interests may be threatened with such a move. Also, the grabbers who do not have any real projects to kickstart with a threshold employment should loose the leases/holding rights so that re-auction can take place. Suitable penal provisions including cutting down size of holding should be options for the industrial development authority which should be free and pushed to exercise the statutes without political interference. Faster legal processes will provide additional help to avoid continued judicial imbroglio under suitable legal statues will help, but are thwarted for political reasons. The manufacturers should be supported to focus on his operations rather than neighboring land deals, where he currently feels that greater profits lie and therefore an area of greater interest including capital/credit deployments. This is while the academicians continue to sing and dance about the inspector raj and its tyranny which terrorizes the sector. Noise to rein inspector raj and labour laws to unleash manufacturing makes large component of public discussion forums. The fact is that their exists a clutch of ‘advisors and services providers’ in the each area who manage these inspectors for a payout, is forgotten conveniently including the fact that inspectors in India can be managed even when the units may be non-compliant till such a time when a bossy superior of the inspector decides to cut the game out; often a sign of deterioration of politico-bureaucratic relations with ‘difficult bureaucrat phenomenon’. These ‘consultants’ may of course have ‘costs’ but such costs are often much lesser than the cost of compliance (although situation may change in case of a litigation or mass/ public agitation). We continue to pay lip service to real issues, blame labour and related laws, environment and other inspectors, high interest rates, lack of credit and risk capital, poor power supply and other infra, raw material availability, fuel etc. which only supports ‘capital deepening’ further, thus furthering the interests of the oligarchy rather than ‘real issues’ which can tilt the balance in favour of the sector of interest to common people. There is need to create incentives in favour of ‘production’ including premium rewards for customer loyalties towards products/services; by moving away incentives for hoarding of land. A suitable tax regime for unproductive holding of industrial land which makes holding costs prohitively high might also help the cause of industry besides generating revenue for state/industrial development authority/municipality. Off course there can be no sentimental value for such industrial land holding or leases which are for defined purpose and therefore made available at rather competitive prices for business units and therefore if obligations are not met so state should be allowed to force corrective actions. This may require a supportive centrally sponsored law or model codes and supportive provisions.
By: Amit Bhushan Date: 27th May 2014
The competition for Infrastructure and PPP projects is twisted by players with a leeway with the politicians who connive/ influence bureaucrats egged by politicians into twisting rules to accommodate business’s interests. What has ensued is a rush to corner projects so that corporate can expand its business profile and fall in the legion (or builds such an image) of a systemically important and weighty company with ability to cause impact on the investment environment, so to say. Then this company can put forth arguments to the government, some of which may be true shortcomings of the plan while others may be brought in to justify the business interest of the corporate and jack up profits and valuations. Any shocks to such investments must be taken care by banks especially those controlled by the government, to ensure minimal damage to economy and country’s competitiveness. Besides lack of fair competition, it impacts most of the other sectors in a major way.
The Small and Mid-sized segments have little chance to compete in this manner and if they still manage to get large sized projects stretching finances and other resources beyond limits, then chances are ripe they will be taken over and assimilated by large conglomerates egged by supporting factors for the same. The oligarchy thus continues to wield its influence in the powerplay and their may be very few players who may manage to break the stranglehold that too mainly in the emerging new sectors. Very few entrepreneurs creep into this play that too not without support from politico-bureaucrat nexus and often this may be under even more murky circumstances.
The kind of competition ensures that we do not have robust and competitive infrastructure facilities and therefore adversely tilted playing field for manufacturing and services companies. The dependent sectors are forced to cough up high rent or premium pricing on land and facilities which cascades into costs to the customers. Any pockets of competition are systemically thwarted to ensure the stranglehold. We therefore have successful entrepreneurs out of Non-Residents, however almost none within the country barring in emerging sectors like IT, Bio-Tech, Non-renewable energy etc. which are still profitable due cheap professionals being available, though this fact is not acknowledged by industry/entrepreneurs who have complaints about costs and quality. To be fair, our tax holidaying policies and industrial relations laws like provision for benefits monitored through inspectors and union-related provisions have also played their supportive role to encourage units in other sectors to play it small and remain outside the ambit of organized sector rather than just the competitive structure of the larger economy.
The manufacturing sector for physical products which require abundance of land resources (with access to sanitation, water, power, roads, rail-links etc.) as well as free access of raw materials/minerals and markets is impacted badly by twisted nature of competition. This, coupled with ‘Free Trade access’ from competitive countries which need to be facilitated with lowering of tariff and non-tariff barriers has put paid to the entrepreneurs dreams to make it big in the traditional manufacturing sector. A testimony to this fact is that one can find large units in barren village lands which are connected by roads. This is because entrepreneurs preference for such areas rather than developed industrial clusters for reasons sprinkled in the article. For services sector, it affects to lower wages, increased taxation and higher capital related entry barriers. This therefore suits an oligarchy but not all players’ especially new entrepreneurs.
With different segments of government at center and state having their own priorities and little coordination serves as a scenario of ‘growth paradise’ for the land and infra sharks who ensure that simultaneously not too many opportunities are competing for investor’s interests so that prices remain high. This serves them well as they can share the benefits with the politico-bureaucrat nexus on regular basis and maintain their stranglehold on the economy. Whatever foreign investors do pour into such state of affairs is because of the large size of population and economy with slow pace of transformations that makes some sectors attractive at a particular juncture which may be of interests to the investor even at premium ‘cost of entry’. It off course helps that over the years land prices have remained on an upwards trajectory so investors can exit their land holding for profit, if required (subject to exit policy off course). Lack on action on land grabbers for industrial land who enjoy political support; is one of the barriers and this may include lack of policy to transfer such land to other units in case of failure of industry. Instead of support for such land, changing hands seamlessly; we support conversion of such land into commercial use at behest of investor for obvious reasons other than promotion of industry. Our tax holidaying policies, changes in power and water situations allow additional excuses which may also include staged labour related pangs for the unit. The entrepreneur continues to hold land to exit at huge profits possibly after change in land use under supportive policy makers.
If the traditional manufacturing sectors are required to be supported then the center and state governments need to join hands to develop 2-6 large industrial land clusters in each state with complete infrastructure so that the same may be competitively available to manufacturers outsmarting the sharks in the field whose interests may be threatened with such a move. Also, the grabbers who do not have any real projects to kickstart with a threshold employment should loose the leases/holding rights so that re-auction can take place. Suitable penal provisions including cutting down size of holding should be options for the industrial development authority which should be free and pushed to exercise the statutes without political interference. Faster legal processes will provide additional help to avoid continued judicial imbroglio under suitable legal statues will help, but are thwarted for political reasons. The manufacturers should be supported to focus on his operations rather than neighboring land deals, where he currently feels that greater profits lie and therefore an area of greater interest including capital/credit deployments. This is while the academicians continue to sing and dance about the inspector raj and its tyranny which terrorizes the sector. Noise to rein inspector raj and labour laws to unleash manufacturing makes large component of public discussion forums. The fact is that their exists a clutch of ‘advisors and services providers’ in the each area who manage these inspectors for a payout, is forgotten conveniently including the fact that inspectors in India can be managed even when the units may be non-compliant till such a time when a bossy superior of the inspector decides to cut the game out; often a sign of deterioration of politico-bureaucratic relations with ‘difficult bureaucrat phenomenon’. These ‘consultants’ may of course have ‘costs’ but such costs are often much lesser than the cost of compliance (although situation may change in case of a litigation or mass/ public agitation). We continue to pay lip service to real issues, blame labour and related laws, environment and other inspectors, high interest rates, lack of credit and risk capital, poor power supply and other infra, raw material availability, fuel etc. which only supports ‘capital deepening’ further, thus furthering the interests of the oligarchy rather than ‘real issues’ which can tilt the balance in favour of the sector of interest to common people. There is need to create incentives in favour of ‘production’ including premium rewards for customer loyalties towards products/services; by moving away incentives for hoarding of land. A suitable tax regime for unproductive holding of industrial land which makes holding costs prohitively high might also help the cause of industry besides generating revenue for state/industrial development authority/municipality. Off course there can be no sentimental value for such industrial land holding or leases which are for defined purpose and therefore made available at rather competitive prices for business units and therefore if obligations are not met so state should be allowed to force corrective actions. This may require a supportive centrally sponsored law or model codes and supportive provisions.