Growth is robust on the Central Statistical Office’s charts but not on the visible ground. Commercial vehicle sales picking up and some activity on coal mining constitute the only good news. Yet another interest rate tweak is not suddenly going to catalyse a huge upswing in the mood or investment. For
that, infrastructure has to be freed from the thrall of stalled projects, debt overload and banks unwilling to lend any more. Since consumer goods sectors have spare capacity, infrastructure is the only sector that can absorb significant amounts of growth-boosting investment, and to revive that, there has to be some external intervention. That intervention has to come from the government.
The government has done the right thing by stepping up outlays for the Railways. But this is neither enough nor the primary task before the government. The challenge is to kick-start stalled infrastructure projects. Faster clearances will not achieve this. These projects have to be separated from their debt-crippled promoters. Some precision surgery is required, in other words. The RBI and Sebi have eased provisions to convert debt into equity. Now, the government must negotiate with the promoters to ease them out. Each project must be converted into a special vehicle, where debt is converted to equity, everyone takes a haircut to bring the cost of the project down to realistic levels, and the promoters exit. The project can now be bid out to new implementers, who receive some equity on achieving specified milestones. New financing has to be made available. Government guarantees can fetch enough from the global pool of capital facing zero to negative rates of return in the developed world. The banks can exit once the projects get going.
Will promoters go along? Since there are only so many players who can implement large projects, everyone will get some good ones with clean books, even if they lose their own. A 5% stake in a viable project is better than 30% equity in a project with inflated costs, whose debt forces you to sell off cash-generating assets elsewhere.
