FE Editorial : Road to responsibility

Written by The Financial Express | Updated: Feb 20 2013, 06:37am hrs
Given that some of the top biddersthe GMR Group, the GVK Groupwalked out of NHAI projects because of huge delays in getting clearances, the possible solution being discussed is a good one and needs to be taken further, and quickly. According to newspaper reports, at the PMOs meeting on delays in highway projects, one of the ideas considered was for the government to compensate developers for delays from the governments side. The idea, it has to be pointed out, is still at a formative stage and is a long way from becoming, if ever, policy. But it has powerful implications.

The finance ministry, it is obvious, will baulk at the idea considering its costsand the demand to have it applied to other sectors as wellbut this is missing the wood for the trees. If the government is to compensate firms for the losses its actions cause, this can only improve the investment climate and bring in more bidders for PPP projects. Indeed, if theres a lesson here, its of how, with appropriate guarantees, the government can improve the investment climate. Take land records where, given the government doesnt guarantee the accuracy of land records, people spend large sums doing due diligence on property sales. If, on the other hand, the government guaranteed to make good the losses investors suffered due to inaccurate recordsthe land X bought turns out to be Zs though the records show it belongs to Ythe investment climate would improve, giving better returns to government. Inflation-indexed bonds, to talk of the other idea in vogue nowadays, would cost the government more, but would be worth it since it would help channelise household savings away from gold into financial instruments. Smart government, as opposed to just smaller government, needs to be the mantra of the day.