Catalyst to Growth

ADB’s development strategy aims to build robust infrastructure

It is generally acknowledged that India needs substantial investments in its infrastructure sector for achieving growth that is not only high, but also inclusive. Developing world-class infrastructure will add to India’s existing strengths in having a young labour force, robust institutions and dynamic entrepreneurs. Building new airports, roads, power plants, ports and other infrastructure is key to spurring economic activity and unlocking opportunities in urban and rural regions.

The government’s focus on infrastructure-led growth is, indeed, encouraging. The government is moving fast to streamline policies and processes to boost the infrastructure sector through a projected $1 trillion investment by 2017. Some of its recent measures have clearly improved the investment climate as well as the ease of doing business in the country, and will ultimately have a direct positive impact on the infrastructure sector.

These measures include scrapping obsolete regulations, moving towards self-certification, implementing online environmental and forest clearances, and introducing a single web portal for online registration of manufacturing units and reporting of inspections. These steps have helped India rise to number 55 (from the earlier number 71) among the 140 countries rated in the World Economic Forum’s Global Competitiveness Index.

The government has also taken steps to “debottleneck” infrastructure projects that have been unable to move forward. The Project Monitoring Group has, since its inception in mid-2013, resolved issues in 197 projects worth $105 billion, or about 5 per cent of India’s gross domestic product.

Another important step by the government is the recent setting up of the National Infrastructure Investment Fund that will attract the interest of foreign institutional investors such as pension and sovereign wealth funds. My understanding is that it will present investors with many options to invest in infrastructure projects, especially as India will remain one of the fastest growing economies.

The seriousness of the government in boosting the infrastructure sector is reflected in a spike in public investment of 30.8 per cent during the period April-November 2015. A major part of this has gone into roads, and rural and urban development.

These are indeed positive indications. However, several challenges remain for addressing the infrastructure deficit in India.

First, there is a need to ensure adequate financing for infrastructure projects. This would require developing a corporate debt market, introducing innovative mechanisms such as takeout financing and credit guarantees, tapping pension and insurance funds, improving the efficiency of tax collection, and increasing the revenue base through tariffs and user charges.

Second, more work is needed to ease the regulatory and institutional impediments affecting infrastructure investment. These include hastening environmental and forest clearances, and streamlining project approvals by improving coordination between different agencies, both at the central and state levels.

Finally, there is a need to increase the planning and implementation capacity of executing agencies, and increase investment in detailed project reports to ensure optimal outcomes.

Through our operations in India, ADB has been working closely with the Government of India to help address some of these challenges in infrastructure development.

Since commencing its operations in India in 1986, ADB has approved 197 sovereign loans amounting to $33.1 billion, and 57 non-sovereign sector transactions of $4.62 billion. The bulk of the portfolio is concentrated in the transport, energy and urban sectors, with support, to a smaller extent, to the public financial management and agricultural sectors.

ADB has played the role of a catalyst for private sector financing in the infrastructure sector. In order to do so, ADB has provided, since 2007, multi-tranche financing facilities to India Infrastructure Finance Company Limited (IIFCL) with total loans of $1.9 billion. These loans have helped fund 65 public-private partnership (PPP) projects, including the Delhi and Mumbai international airports and takeout financing of the Hyderabad International Airport.

In order to tap domestic savings, an innovative financing modality has been introduced under which ADB and IIFCL will issue partial credit guarantees in support of rupee-denominated bonds to finance select infrastructure projects. This would improve the credit rating of bonds issued by infrastructure developers, making the bonds eligible instruments for insurance firms and pension funds to invest in.

Another initiative has been the support provided to the Government of India’s PPP programme since 2006, through the PPP initiative comprising nine technical assistance projects. PPP cells staffed by experts have been operationalised and institutionalised to enable states and central ministries to facilitate PPP projects.

ADB has supported India’s infrastructure projects to increase connectivity to neighbouring countries, such as cross-border roads and transmission lines. ADB also supported trade facilitation initiatives such as the Bangladesh-Bhutan-India-Nepal cross-border motor vehicles agreement to develop trade corridors.

Recently, ADB partnered with the Government of India for developing the East Coast Economic Corridor (ECEC), India’s first coastal corridor that will link India’s coastal states to global production networks and value chains. The ECEC will involve an ambitious infrastructure programme, skills development initiatives and regulatory reform in industry and increased urbanisation. ADB has already developed the conceptual development plan of Phase I of the ECEC. This is the Vizag-Chennai Industrial Corridor (VCIC) that focuses on Andhra Pradesh; key industries have been identified for development. The approach to the VCIC presents a new model for ADB’s engagement in middle-income countries. In particular, ADB is bringing together national and international experts on infrastructure, industrial development, and urbanisation to work closely with state government agencies. The objective is to understand the key infrastructure and regulatory bottlenecks to industrial development and urbanisation, and then design a programme of infrastructure investments, skills development initiatives and the necessary regulatory changes that will enable the VCIC to reach its full potential. ADB will be looking to replicate and apply this approach in select cities in the country.

This is consistent with the Government of India’s flagship Make in India initiative that emphasises the importance of integrated planning in infrastructure development. We at ADB feel that integrated planning for transforming manufacturing and promoting urbanisation is important for infrastructure development. Economic corridors are a step in this direction.

Earlier, I mentioned the need to develop the capacity of executing agencies as a crucial element of infrastructure development. I am happy to mention that ADB’s India Resident Mission has pioneered the establishment of a Capacity Development Resource Centre that has been conducting capacity development programmes for executing agencies for ADB-funded projects since 2008. Over 6,000 executing agency staff members have been trained in programmes including project management, contract management, procurement procedures, safeguards, and impact evaluation.

Going forward, ADB plans to scale up the level of its assistance to India. In addition, we look to increase our support to private sector development, including PPPs, in catalysing investments for infrastructure projects. ADB currently offers transaction advisory services over the entire range of activities associated with the development and implementation of PPP projects. These include screening and identification of bankable projects, giving advice on commercial and financial structures, conducting due diligence and preparing bidding documents.

With advances in technology, ADB, in its role as a knowledge partner of the Government of India, will be looking to disseminate knowledge and provide knowledge solutions for the country’s development needs. Knowledge solutions are important drivers of change, and are essential for ensuring that ADB’s lending activities have a large, positive development impact on developing member countries (DMCs).

We will continue to support the Government of India’s Innovation Impulse with Investment approach to financial assistance from multilateral development agencies. This approach calls for projects to have systemic positive impacts on business processes, introduce innovations and advanced technology, and pilot new approaches. ADB will continue to support policy reform and institutional strengthening, and add value through such projects.

In conclusion, I would like to say that a fast growing economy like India needs to scale up efforts at removing infrastructure deficits. It is good to see that the government is already moving in this direction by prioritising infrastructure development.

Concerted, sustained efforts by both the public and private sectors towards infrastructure development will ensure that India contributes substantially to future global growth. India’s prospects look bright as the investment climate and ease of doing business improve steadily.

We at ADB are happy to continue to work with the Government of India to enhance the reach and effectiveness of our programme by bringing in international experience and best practices to support infrastructure development in the country.

Wencai-Zhang,-VP,-ADB-01-march-2016Wencai Zhang,

Vice-President (Operations Group 1),

Asian Development Bank

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