Friday, November 14, 2014

Jawaharlal Nehru and his legacy

Jawaharlal Nehru and his troubled legacy
Jawaharlal Nehru could have set an example and kept his daughter out of politics instead of making her the Congress President. This was the first big nepotistic step in Indian politics which was later justified on all kinds of specious grounds by many Nehru acolytes. Photo: Getty Images

Dipankar Gupta live Mint :14 Nov 2014

Jawaharlal Nehru’s contribution would have had a much longer life had not members of his family systematically tarnished it. From breaking the Congress organization in 1969, to the declaration of Emergency, to the initiation of caste wars, to the encouragement of Sikh militancy, to the decision on Shah Bano, to the opening of the Babri Masjid, and the list goes on, it was Nehru’s bloodline that most effectively downgraded his memory. Experts and commentators connived in this for they were blindsided by the family connection and failed to see the break that was being repeatedly wrought on Nehru’s memory first by his daughter, then his son and then his daughter-in-law and great grandson. So when the time came, and come it would, the haters and baiters of the first prime minister easily positioned his memory in the short hairs of their blunderbusses and shot it down.
As it is, Nehru tripped himself up on a number of policies he had staked his reputation on. In times of economic crisis or border threats—as from China—he sidestepped non-alignment and turned to America first. Or, when it came to socialism, he made it known that he would never stand for the Soviet model and preferred the mixed economy instead. That this position was supported by India’s fledgling entrepreneurs of the time only made Nehru’s claim to be a socialist”’ somewhat contrived. Even if socialism were to be interpreted as “welfare statism”, he did precious little on issues like universal health and education.
Nehru, however, played a sterling role in keeping India together in its most critical years after Independence. He was not alone in this, but without his whole hearted support to the making of the Indian Constitution, we would have been a poorer Republic. He weighed in heavily in favour of anti-untouchability, minority rights, and the abolition of feudal privileges which, together, make our Constitution so outstanding. India was a young Republic in 1950, but it looked, talked and walked like a seasoned democratic nation-state. True, he was not alone in this, but as Prime Minister, it was Nehru, more than anybody else, who fleshed out these most singular aspects of our Constitution. It would have been the easiest thing to renege on them given the tensions and uncertainties India faced in the early post-Independence years, but Nehru remained firm.
What made Nehru stand out was his insistence on the principle of fraternity. Unfortunately, it is not difficult to undermine him on this score as fraternity is fashioned on intangibles; it is not made of brick and mortar, nor can it be measured monetarily. Yet, without this all important attribute, neither liberty nor equality makes much sense—they actually ring hollow. Nehru’s contribution to fraternity came through in his insistence on secularism which went all the way from anti-casteism to anti religious sectarianism. He made no compromises on any of these but, unfortunately for him, these can easily be shafted in the name of political expediency. And this is exactly what his daughter, grandson and the succeeding generation did. Secularism has been the single greatest casualty in the five decades of Congress rule after Nehru. It is for this reason that ‘secularism’ today has become the butt of ridicule, and even half literates have a field day in mocking it.
Nehru’s industrialization programme required a long gestation period which people, with a limited time horizon, found difficult to accept. Further, for the mixed economy to succeed, state enterprises had to be super efficient in infrastructure creation. Without laying out this groundwork it would be difficult for the other half of the mixed economy to come of age. This was the true meaning of self-reliance as Nehru saw it and all autarkic versions of it put out by his enemies, and some admirers too, are contrary to this vision. None of this could be accomplished overnight by token gestures and oratorical flourishes; they all required careful calculation, and hard core research and development. Mistakes were made, plans recalibrated, Constitutional impasses overcome and before any of these could be firmed up, Nehru was gone.
Perhaps his record as prime minister would have been different had he lived longer. True, he had set himself a gigantic task by standing up for India’s economic sovereignty and battling ceaselessly against traditional prejudices. Yet, sadly and oddly, he failed most monumentally in his lifetime not so much on these grounds as he did because he was an extremely prickly nationalist. Whenever India’s physical integrity faced a threat, even imaginary ones, he was unable to take a proper democratic decision. He blundered on Kashmir and we are still paying for it; he totally miscalculated on China; he did not understand the Sikhs or the sentiments that had been stirred up in the North-East. One could possibly excuse him for these sins for India had just emerged as a nation-state and the fear of Balkanization was very real in the minds of many. In fact, he feared the breakup of India so profoundly that he was even against the formation of Maharashtra and Gujarat as well as the unilingual state of Punjab.
That is not quite all. Nehru could have set an example and kept his daughter out of politics instead of making her the Congress President. This was the first big nepotistic step in Indian politics which was later justified on all kinds of specious grounds by many Nehru acolytes. The other unpardonable thing he did was to choose Teen Murti, the biggest house in the capital, as his official residence. This encouraged pomp and splendour among ministers and bureaucrats, and this strain has only become worse over time. The subsequent conversion of Teen Murti as Nehru Memorial Museum and Library has also set up a negative precedence. Since then, children of many departed prime ministers and political heroes have turned their dead ancestor’s home into public monuments.
In balance, Nehru’s legacy is on its way out. It is, however, in our national interest to keep alive his devotion to the cause of “fraternity”. This can best be done if we do not see the regimes of Indira or Rajiv or Rahul as a continuation of what Nehru stood for. If ever fraternity truly becomes relevant in our country again, nobody will remember that Jawaharlal Nehru was its prime mover once upon a time.
Dipankar Gupta is a distinguished professor at Shiv Nadar University and Director, Centre for Public Affairs and Critical Theory. He was formerly professor in the Centre for the Study of Social Systems at Jawaharlal Nehru University, New Delhi. Article courtesy blog.oup.com (Oxford University Press’ Academic blog)

Infrastructure :The right path for infra financing

Shining all the way IDFs offer a long-term solution FUYU LIU/SHUTTERSTOCK

BL radhika Merwin 14 Nov 2014
Infrastructure debt funds can take some of the burden off public sector banks in lending to long gestation projects
It is evident now that the only way to revive the Indian economy from its long slumber is to kickstart infrastructure projects. While various policy initiatives from the Government hold the key to rev up stalled projects and revive the capex cycle, infrastructure spending is vital. Infrastructure Debt Funds (IDFs), which were conceived to provide an additional funding route for such projects, appear to be well on track, tapping into pools of private capital.
Given that the Government can cough up about half the amount needed to fund long-term infrastructure projects, and the slowdown in the economy has further crimped the flow of government funds, more participation from the private sector is imperative to sustain long-term infrastructure development.
Banks, particularly public sector banks, have been at the forefront, providing the necessary funding and taking on risks associated with these long gestation projects. But banks’ increasing exposure to the infrastructure sector has led to asset liability mismatches in their balance sheet and increased their stock pile of stressed assets.
IDFs will not only free up banks’ balance sheets to take on fresh lending but also provide borrowers a low-cost financing option. This, along with infrastructure bonds that banks are now allowed to issue, should see greater participation from the private sector.
The first leg of the journey
The Finance Minister in his Budget speech for the year 2011-2012, announced the setting up of IDFs, and the RBI subsequently issued guidelines in September 2011 for setting these up.
IDFs are investment vehicles which can be sponsored by commercial banks and non-banking financial company (NBFCs) in India. Domestic or foreign institutional investors, specially insurance and pension funds, can invest through units and bonds issued by the IDFs.
An IDF can be set up either as a trust or as a company. A trust-based IDF is a mutual fund that is regulated by market regulator SEBI, and issues units to the investors. Under the company-based format, the IDF is an NBFC that issues bonds to investors. The IDF-NBFC is regulated by the RBI.
So far, three infra debt funds have been set up through the NBFC route and one through the MF route. For now, IDF-NBFC appears to be a preferred route for raising funds. The advantages of this route lie in the distinction between the two different formats.
There are three notable distinctions. One is the scope of financing. IDF-NBFCs are allowed to invest only in infrastructure projects which are created through the Public Private Partnership (PPP) route and have successfully completed one year of commercial production.
Hence these debt funds can finance projects under NHAI, ports, airports and metro rail . As they lend only to operational projects, they do not carry any construction risk.
The other risk mitigating features include a tripartite agreement between the project authority, the company and IDF-NBFC, and a compulsory buyout with termination payment, in case of a financial default.
However under an IDF-MF route, all projects — even the ones that are under-construction — can be financed. Hence the risk under this format is much higher.
The second distinction is more from an investor’s point of view. In case of the NBFC route, the money is raised through the issue of bonds, which is rated by a credit rating agency. The money raised is then lent for infra projects.
However under an MF route, each scheme lends to different projects, and investors in these schemes take a direct risk and exposure to such projects.
The last distinction is more technical in nature. IDF-NBFCs are allowed to issue bonds and hence can leverage themselves. Given that they need to maintain 15 per cent of risk weighted assets as capital, they can leverage themselves several times of equity of the IDFC-NBFC. Hence they can borrow more to lend more and so the costs of funds are cheaper.
In the case of IDF-MFs, since they issue units, question of leverage does not arise.
Hence the NBFC route is a lot easier to market, because it is easier to raise money through the bond market and pay a certain coupon rate. Under the MF route one cannot indicate rates and investors take a direct risk in the funded projects.
That said, one cannot ignore the merits under the MF route either. The market for an IDF-MF is larger as it can finance all projects. As this route gains acceptance among the more mature class of investors, it will play a vital role in infrastructure financing over the long-run.
Small leap
While infrastructure debt funds may appear tiny in the larger context of banks’ lending exposure to the infrastructure sector, over the next three to four years, these can make a huge difference in pooling private funds.
Banking sector’s lending to the infra space is about ₹8.7 lakh crore. This is the entire market for IDF-MFs. But for the NBFC format, the market size may be a fifth of this. While this number looks small, it will still help free up some of the banks’ funds for new projects. Also as the MF route gains ground, more assets — even riskier ones — can be taken over. Currently there are three IDFs under the NBFC format. L&T IDF, sponsored by L&T Infra Finance, has raised about ₹750 crore so far, and expects to have an asset base of about ₹1,000 crore by the end of this fiscal.
India Infradebt is another fund that is sponsored by four leading financial players and is said to have raised about ₹300 crore. The third fund is sponsored by IDFC, which is now transitioning into a bank and will transfer part of its assets under IDFC to the debt fund.
The general expectation from industry players is that over the next three years, IDFs through the NBFC route will be able to fund assets worth ₹25,000 crore.
IDFs are also well on track in providing fairly cheaper finance. Corporate borrowers are lent money at 10.5-11.5 per cent. This will improve the financial viability of infra projects.
Regulatory leeway
IDFs can thus complement banks in financing long term infrastructure projects. Public sector banks have been more active in lending to long gestation projects, which requires taking on the completion risk in the initial stages of the project. Banks are likely to increase their lending activity, given the regulatory leeway in raising funds for such projects.
The Reserve Bank of India (RBI) in July allowed banks to raise funds for lending to infrastructure sector without regulatory requirements such as CRR, SLR and Priority Sector Lending targets.
The RBI has now allowed banks to lend to very long-term projects, with an option to refinance it periodically. Banks can, say, lend for a 25-year project, with an option to roll it over after five years.
Hence, as the loan comes up for refinancing, it may be taken up by the same lender or a set of new lenders. This is where IDFs can step in and help banks free up funds for deploying in new projects. As the economy revives and the new capex cycle picks up, IDFs will play a central role in bringing in long-term funds for infrastructure project finance in the country.