Rewind. Infrastructure growth on the right track

A lot of sensible steps are being taken by the Government. It has, by putting on auction scarce resources like telecom spectrum, coal blocks and road projects, vastly reduced the corruption that discretionary allocation of these resources bred. Stuck projects in roads are being re-configured and their implementation, along with the massive investment by the Railways, will kick-start the investment cycle and boost steel and cement demand.

Orders with BHEL for power generation equipment are up 27 per cent, which suggests that the capex cycle is turning positive. This is partly because the recent tightening of power emission norms by the environment ministry has boosted replacement demand. The Railways, under Suresh Prabhu, has already tightened cost control and saved ₹8,000 crore. It is investing in network expansion, and the Delhi-Mumbai Dedicated Freight Corridor (DFC) project, when completed, will provide a rail line devoted only to freight movement, thereby saving costs.

The Railways have also negotiated with the Japanese Government to fully finance a $16 billion high speed passenger train project between Mumbai and Ahmedabad. The loan will carry an interest of only 0.1 per cent with a 15-year moratorium and a 50-year repayment schedule. There will also be a transfer of technology. The Eastern and Western Dedicated Freight Corridor project, at a cost of ₹81,000 crore, has also been cleared.

Investors are also expecting a cut in interest rates by the RBI soon, after the Finance Minister stuck to fiscal discipline. There are reports that the government is planning to merge 27 public sector banks into six. This means it intends to continue exercising majority control and still does not fully believe in free markets. This must be seen in the context of the news that the Enforcement Directorate believes that it was under political pressure that IDBI Bank sanctioned a further ₹950 crore to Kingfisher Airlines, in 20 days, at a time when it had a negative credit rating. It can certainly be argued that private sector banks, including the foreign ones, have also sanctioned bad loans; witness the travails of Standard Chartered Bank in India, for example. However, the government would do well to consider the alternative of privatising some of the PSU banks rather than mere divestment, and also allowing newer private banks to come up.

A caveat must be added here, though. Free markets work fine if there is proper regulation, and swift punishment for misdeeds. Sadly, our judicial system favours the wrongdoers and penalises victims. The government must crack down on indiscipline. And hard!

It’s the same for Air India; a suggestion to sell 49 per cent stake in the airline has been denied by the government when it ought to be roundly welcomed. In fact, sale of 100 per cent would be a good move. British Airways, privatised by Thatcher, is now ranked 20 in the list of world’s best airlines whilst Air India is not even on the list. Why should tax payers pay for an inefficient airline?

The macro picture for India is good. Lower oil prices have helped reduce the current account deficit to 1.4 per cent in the first nine months of this fiscal, from 1.7 per cent a year ago. The uptick in the investment cycle and expectations of a rate cut can lead to a stock market rally. The only dark lining is a global crisis. The US stock market is propped up by buy-backs, using borrowed money. These amounted to $165 billion, this last quarter. One day, this game of musical chairs will stop.

The writer is India Head, Euromoney Conferences

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