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    Piyush Goyal pushes for stable, predictable policy regimes for sustained growth

    Piyush Goyal pushes for stable, predictable policy regimes for sustained growth

    Piyush Goyal pushes for stable, predictable policy regimes for sustained growth
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    By Latha Venkatesh   IST (Updated)

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    Goyal said about $4.5 trillion worth of funding would be necessary for infrastructure products over the next ten years.

    Speaking at Asian Infrastructure Investment Bank (AIIB) second annual meeting in Mumbai, panel of experts comprising of Interim Finance Minister Minister, Piyush Goyal, said stable, predictable policy regimes with high standards of integrity would attract higher investments in the country.
    Speaking about the funding requirements for India, he said about $4.5 trillion worth of funding would be necessary for infrastructure products over the next ten years.
    "Important challenges will be cost of that finance both equity and debt, another important challenge will be to create the availability of local resources, build up capacity to actually implement this level of projects," he said.
    The panel of experts comprised Goyal, Bambang Brodjonegoro, Minister of planning Indonesia, Piyush Gupta, CEO of DBS Group, Bandar Hajjar, President of Islamic Development Bank and Jin Liqun President at AIIB.
    Edited Excerpt:
    Q: Tell us what has been India's experience in terms of finding money and exactly what the problem is in getting private capital into infrastructure financing?
    Goyal: To my mind infrastructure today is one of the most important and engaging subjects when it comes to planning for the future of Asia. Different estimates about what is required to be done, you did highlight the problem between the world of finance and the world of infrastructure but it is somewhat like a marriage, it has to be a little rocky in the beginning. It goes through its stages of maturing and once projects are inline, you have all the requisite approvals, regulatory processes in place, land, finances tied up, then it becomes a smoother ride.
    Ultimately when the entire project is complete then it is joyous because it can transform lives. To my mind the infrastructure story in most countries, I am sure the western would have gone through that at some point of time and Asia today is experiencing that.
    We in India have seen the development of infrastructure actually transform lives, actually help us go towards meeting the aspirational goals of a billion people. For that what is most critical to attract private capital or even to attract multilateral finance companies to come into India, is going to be a predictable, very stable policy regime, it has to be simple, it has to be easy to navigate, it has to be truly long lasting, you can't change the rules of the game as you go along.
    To my mind something which Jin and I discussed yesterday - integrity of processes and integrity of individuals, running those processes both sides of the table, will define the availability of finance.
    There was a time when the entire Asian continent has gone through periods where people distrusted governments and distrusted the processes that went through the process of awarding contracts for infrastructure, Indonesia has faced that period, India has faced that period.
    You can't have a situation where you have projects which have licenses subsequently getting cancelled leading to a lot of distress to international investors or even domestic investors. So, you will land up facing a situation where private capital will run away if it has to be faced with legal issues or problems subsequent to contracts being finalised. It will also takeaway investors and public financiers. I think that has been one of the most important elements of change that we are witnessing today - (a) the change in governments and governance practices, (b) also the change in the mindset of the people of the country.
    There is a lot more accountability demanded, there is a lot more monitoring of the work you are doing and there is action taken if something goes wrong. Action which is decisive, action which is visible. Therefore I don't feel any great pressure that we will have a problem of finance when we are doing the massive rollout of infrastructure in India in the coming years. Different estimates are made, we believe we will need about $4.5 trillion over the next 10 years at the minimum.
    Important challenges will be cost of that finance both equity and debt, another important challenge will be to create the availability of local resources, build up capacity to actually implement this level of projects. I am sure with the support of organisations like the AIIB which are bringing in very high quality standards, high integrity standards and supporting also countries like India develop these processes, I would not think that finance should be a deterrence to the creation of the infrastructure which India requires.
    Q: What has been Indonesia's experience so far in terms of attracting private capital to infrastructure and generally finding money for infrastructure?
    Brodjonegoro: In general I agree with Piyush Goyal about the issue of strong regulatory framework as well as the certainty for the business. In the issue of certainty, I don't know about other countries but in Indonesia we used to have a fairly critical issue which is land acquisition. So, whenever they have the interest to build the infrastructure project, sometimes their project is disrupted by the land acquisition issue.
    That is the reason why the government is trying to put the emphasis more on land acquisition just to create certainty. On top of those issues, one critical issue for private sector investment in infrastructure is the readiness or availability of so called feasible projects.
    We know that there are lot of long term financing everywhere in the world and then there are the needs of the developing countries to build the infrastructure but sometimes when we are trying to attract private sector, we are not ready to provide good feasibility study that makes any potential infrastructure projects bankable.
    I believe any private investor is only interested with the bankable projects because they need to get some debt financing. So, sometimes we ignore, we always say that we have huge potential, we need power plants, we need airports, sea port but when it comes to the detail which is feasibility study, we don't have a solid feasibility study.
    Q: Multilateral organisations like yours instead of giving a large amount of money t few projects, can you give small amounts to many projects but the covenant should be that the private capital which comes in should have the advantage of cross default, that is, if the project defaults to the private capital, it is also a default on the MDB. If that covenant is written, governments will be a little wary of allowing that default because they don't like to default with MDBs and therefore private capital will be happy to come in, they will feel enthused to come in. So, does this work for a multilateral bank? and then to the ministers, whether there will be a buy in from the sovereign for an idea like this? Your reaction to this idea and any others?
    Liqun: My reaction is it is dangerous. You scare away both the public and private sector, I hope I am wrong but I think it is very hard. It is very complicated. Private sector companies operate by their own standards and public sector have their own standards. I think the best way is to workout some kind of a mechanism in which for instance we can facilitate the PPP.
    With regards to the MDBs, we are working fairly well, all of the MDBs. Even though we do not have yet real projects but the chemistry between the Islamic Development Bank and our bank is developing. When we start to invest in many African countries, the first African country is Egypt where we have already invested. So, we can do big ticket projects. To support smaller ones in a cost effective way we can invest in private equity funds because they reach out.
    They reach out, they do something which we cannot do. To draw an analogy, if you have a big container, you throw in big rocks in it, very quickly it seems like the container is filled but it is not. You have to throw in small rocks and even sand to completely fill the container. That is why big companies, smaller companies need to work together to achieve their maximum development impact. So, if you want to work together that is fine, but I am not, I am not going to do it.
    Q: Will you buy it if they come with a cross default clause?
    Goyal: Both are right in different projects. I fully agree with President Jin that we cannot have MDBs getting into very high risk projects and defaulting, they are ultimately going back to the sovereign. It is most of the sovereigns who are principal promoters or financiers. The day we will have MDBs failing or even a single MDB having a stress on their balance sheet, it will shake the international financial system very badly.
    So, we will have to continue to have MDBs who provide relatively lower cost financing, focused on very strong projects, very often insisting on sovereign guarantees or very safe projects. All of us must collectively try and strengthen their balance sheets and strengthen the future, they have a big role to play in the international financing.
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