FE Editorial: Ministry monitors

Thu, Nov 5 01:50 AM

The 11th Five-Year Plan envisions an increase in infrastructure investment from 5% of GDP in 2006-07 to 9% by 2011-12. Around 30% of the required investment is expected to come from the private sector. Everyone agrees that infrastructure is the key driver for economic growth, necessary to kick-start other sectors. There is also unanimity that the government can't finance this driver by itself, as in a bygone era. Hence, the pursuit of private capital. What's equally indisputable is that such capital demands a shift from institutional frameworks created when policymaking, framing legislation, rule making and enterprise ownership converged on the relevant ministries. It demands independent regulators, which nurture competition and optimal utilisation of resources, as well as fix user charges in a rational and market-friendly manner. And the benchmark for fair regulation is an arm's length distance from concerned ministries. Else, a conflict of interest obviously undermines the regulator's legitimacy. It's in this context that we welcome finance minister Pranab Mukherjee's statement that the government is considering setting up regulators for coal and other infrastructure sectors.

As of now, to take selected examples, there is no sectoral regulator in transport or in railways, power or ports, or water and sanitation. For role models, we would turn to Trai and Sebi, which have seen success in telecom and securities, respectively. Even these entities don't deliver full satisfaction, as intermittent controversies suggest. Recognising that full satisfaction is never guaranteed in complex sectors needing regulation, how do we go forward? In a comprehensive paper on the subject, the Planning Commission has suggested that instead of autonomous developments in different sectors, what is needed is a coordinated and cross-fertilised pursuit. Piecemeal regulatory reforms are not uncommon in initial PPP phases; they were the norm even in the US and the UK. But, over recent decades, both countries have moved towards standardising the techniques of regulation. Unless it's prepared to pay high costs in terms of economic growth, India must do the same now. Why should regulators' tenures vary across sectors? Why should some sectors have appellate tribunals, and others not? Above all, as different concession frameworks made available to different national highway projects show, the absence of regulatory reforms makes costly room for non-standard and perhaps politically motivated interventions. We are not recommending regulation for regulation's sake; that would just make a bad situation worse. But without a fair, stable and transparent regulatory environment, Indian infrastructure doesn't have a hope of milking the private capital cash cow.

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