John D. Rockefeller once remarked “The secret to success is to do the common things uncommonly well”. The year 2017 was just such a year in which India did the “common things” well with an eye to attract investments in infrastructure and real estate.
By Taponeel Mukherjee
John D. Rockefeller once remarked “The secret to success is to do the common things uncommonly well”. The year 2017 was just such a year in which India did the “common things” well with an eye to attract investments in infrastructure and real estate. The “common things” here would include creating effective policies, implementing policies and penalizing those who did not follow the rules. With the Insolvency and Bankruptcy Code (IBC) and Real Estate Regulation and Development Act (RERA) implementation India did take some bold steps towards an efficient and transparent corporate ecosystem. The subsequent changes made to the Insolvency and Bankruptcy Code (IBC) also showed flexibility and awareness on part of the policymakers. The Securities and Exchange Board of India (SEBI) crackdown on non-compliant companies and their directors showed the regulator’s resolve to push for higher standards of corporate governance. All in all, there was some good groundwork done in 2017 to build on in the coming years. It is of paramount importance that Indian policymakers and regulators forge ahead with the changes in 2018 and do not refrain from making hard decisions.
At one of the investor conferences I attended in Singapore in July 2017 I had a chance to hear some of the most influential infrastructure investors talk about their views on the future of Asian infrastructure. Two aspects of the discussions and debates stood out for me. The first was the interest to invest in India. Whether it was the renewable energy panel or the toll roads panel, investors were keen to invest in India with an eye on the next 25 years of India’s growth trajectory. The second aspect that struck me was the prevalent view amongst the investors that they were primarily still interested in brownfield (existing) projects relative to greenfield (new) projects. This needs to be changed by new policies and regulations. Institutional foreign capital needs to be encouraged to take on more greenfield risk (investing in new projects) in the infrastructure space such as new toll road construction. To encourage infrastructure investments in greenfield projects it is essential that India creates an investment ecosystem of even greater transparency and accountability than the current one. To do so India must continue to frame, change and implement old and new policies in 2018, as we successfully did in 2017.
Credit markets, rules and contracts need to be respected. What successful implementation of policies such as IBC and RERA do is to encourage corporations to take business risks in good projects as opposed to bad ones. Better project selection for risk taking ensures that capital is allocated most efficiently to profitable projects. An efficient market that rewards good risk taking and penalises poor risk taking, policies that protect investor interest and a mechanism to expedite problem resolution, taken one with the other, create efficient flow of capital. Such efficient flow of capital rewards the investor sufficiently to take on risks inherent in greenfield projects. Increasing foreign capital investments in greenfield infrastructure projects is a key priority for India. Delivering results under the new rules and regulations in 2018 will further boost greenfield infrastructure project investment. There are those that are pleased with regulatory changes and the subsequent implementation carried out in India in 2017 and there are the naysayers too. For both sides, it is important to understand that the process of reforms and the consequent impact are glacial processes. India currently finds itself in a good spot on the global map with a growth rate that is still relatively high versus the growth rates of developed economies, a growing middle class and a world keen to invest into India. Keeping up the good work of 2017 is important. Remember “Rome wasn’t built in a day”! (The views expressed in this article are personal and that of the author.
The author heads Development Tracks, an infrastructure advisory firm. He can be contacted at email@example.com or @taponeel on Twitter)