The rbi — physician heal thyself

The rbi — physician heal thyself

The Reserve Bank of India (RBI), in its annual report, has rightly emphasised the role of public investment in infrastructure in reviving growth and crowding in private investment. It has also suggested some methods to finance such investment. One is foreign direct investment (FDI). It suggests Railways as an ideal candidate.

Why foreigners would want to invest in a loss-making enterprise is a question that is neither asked nor answered. The Railways should hive off suburban transport as a separate entity with a series of joint ventures with the state governments and municipal corporations governing the towns where suburban trains operate and receive massive amounts of subsidy. The rest of the Railways could then be structured to operate efficient cargo and passenger services. Then, perhaps, rail could qualify for FDI.

Privatisation of ports under an independent regulator is another mechanism suggested to raise resources for investment in infrastructure. Monetisation of assets in steel, power, coal and land is also advocated.

Such measures would make sense, except for their effect of channelling available private capital into transfer of existing assets than into creation of fresh assets. Fresh asset creation is what an economy in a slump requires.

The government should borrow and spend on infrastructure, and, on a vastly more expansive scale, channel foreign capital desperately seeking higher returns than what bond markets in the developed world offer into fully articulated projects from the infrastructure pipeline identified by the NITI Aayog. The National Investment and Infrastructure Fund must raise its game in this regard. RBI also suggests developing the debt market.

Further, ‘(t)here is also a need for expanded footprints for specialised NBFCs classified as Infrastructure Finance Companies’. Presumably, these IFCs would raise funds from the bond market and lend to infrastructure projects. Why should the bond markets not directly fund the infrastructure projects? In any case, India needs a functional bond market for.