May 17, 2012 10:45 AM IST | Source: CNBC-TV18

No policy paralysis, India is used to boom: Kamal Nath

One of India‘s top policy makers and a man who can also be referred to as ‘Mr Infrastructure‘, the minister for urban development, Kamal Nath believes the Indian industry has got used to the boom.

One of India's top policy makers and a man who can also be referred to as 'Mr Infrastructure', the minister for urban development, Kamal Nath believes the Indian industry has got used to the boom.

In an interview with CNBC-TV18, Kamal Nath, union minister for urban development said, taking into consideration the fact that infrastructure is a huge sector, the government itself needs to go through a learning process. Therefore, the talks of policy paralysis or government inaction do not stand true for the minister of urban development.

Below is edited transcript of the interview on CNBC-TV18. Also watch the accompanying videos.

Q: This is your third ministership that you are holding in this government. You were earlier the minister of commerce, you pushed the SEZ concept with passion. If you had succeeded in achieving everything that you wanted to do, you would have possibly made India far more competitive than it is today.

As the minister of surface transport, you set out very challenging targets. Although, you may not have achieved them but at least, you gave us that direction and hopefully we will get somewhere near that in the future.

As minister of urban development are we seeing a bit of quietness in you? Is it because of general paralysis that affected this government or is it because this is a ministry that is an enabling ministry, where most of the work needs to be done by the states?

A: There is no silence because there is no paralysis either. What has happened is that the Indian industry has got used to a boom. Whenever the boom disappears, they say it is gloom. So, everybody got used to it, every sector got used to it.

For example, if you take the auto sector, they are used to 35% growth and they think that it is normal. When it comes to 25%, they say things are very bad. A similar thing has happened in the construction sector also. I don’t think there is any paralysis.

The point is that infrastructure is something which is very wide. Since the time we started this huge thrust on infrastructure, it has just been about 5 years. There is a lot of learning process in the government – what do we do? What is the best model? What works, what flies, what government thinks is the best and which will stand to scrutiny, which will be fair and transparent, there is a lot of to learn for the government itself.

Q: Because we are really giving away national resources in a sense, we have got to be very careful?

A: Absolutely. You take any sector. You work on a model. It comes in for criticism. We are not only the largest democracy, we are the rowdiest democracy. And being the rowdiest democracy, everybody has a question and everybody has a point of view. That is in fact good, because it happens with a large amount of consensus and that consensus sometimes becomes slow.

But for the government it was a learning process five-six years ago when they understood what the best models are. For example, what are the best models, if you want to do ports or if you want to do mega power plants?

Q: You are now Urban Affairs Development Minister. It’s possibly one of the most interesting trends that is happening in the country. Today, we have about one-third of our population living in urban towns. Almost 64% of our GDP comes from urban areas. Soon that could go up to 600 million people living in urban areas.

But, the state of our urban areas is incredibly poor. Safe drinking water is available to less than half of urban India, sewage and sanitation available to less than a third. The task is enormous. What is holding it back? Is it policy? Is it money?

A: As I said that growth has preceded infrastructure in India. Just because growth is preceding all sectors, particularly in urban infrastructure, with that growth you find cities mushrooming. You find that we are looking at urbanization and not at suburbanization.

How do we have this in India unlike some other countries? You can't stop anybody from moving. All our physical and urban infrastructure has exceeded its carrying capacity. Because it’s exceeded its carrying capacity in terms of sewage, water. There are these ad hoc arrangements made, which are really in the first stage. Now, this is being planned.

We are planning with proper numbers and the idea of the government of India is to assist the state governments. In this reform, the Urban Renewal Mission funding which we do is based on certain reforms. It is contingent upon reforms the municipalities must make. That was the whole idea.

How do we induce municipalities and municipal corporations to undertake reforms? One of the reforms was you must have proper accounting. You must have IT enabled services. Another reform which was again mandatory was that you try and meet your O&M cost. Today, municipal corporations and municipalities can't meet their salaries and all their money is not for capital cost, it's for salaries. They can’t meet their O&M cost. We are trying to induce reform like this.


Q: The 13th Finance Commission will certainly give access to far more money to urban local bodies. You have the 74th constitutional amendment, which also goes a long way in enabling urban bodies. How many urban bodies are really serious about this – how does this work here?

A: It is working because they have to undertake some basic reforms to avail these funds. In the second stage of the urban renewal mission, we are laying a condition that you must have a municipal service. In this way, you will have dedicated people working moving from a small municipality to a big municipality. He will have some idea of town planning, sewage and waste disposal. Otherwise, what is happening now is somebody working in a municipal corporation goes off to his parent department, which maybe a better department, it could be the electricity board and nothing seems to happen. He is not concerned; there is no sense of ownership so we are making a condition of every step must have a dedicated municipal service.

Q: Which will be through a competitive exam like the IAS?

A: Every state has to make its municipal service. We do not want to specify to the states but they must have a municipal service. Similarly, capacity building. How do we have capacity building? How do we train these people to formulate a project and how to implement the project? Just to make a waste disposable project, they must have some ideas for which you can have consultants. But there must be somebody to be able to even understand what the consultants are saying; that is where we have lagged. There are cities of about 1 lakh population to our mega cities; and now this awakening is taking place, states are hungry for money.

Q: Coming back to the 13th Finance Commission, it said by 2015, you will disperse almost about Rs 87,500 crore to local bodies. But the numbers required are far more. As you said, with 600 million people and  USD 1.2 trillion, what will we need by 2030 you have to look at the private sector? I know you are looking at Public Private Partnership as a model. But a lot of private players are wary of entering into Public Private Partnership because if there is a change in government, they are not too sure if their contracts will be met. How will you protect the investments that they make?

A: I think this is the story of the past. In Nagpur, we have a PPP (Public Private Partnership) project undertaken by a French company. They have set up this PPP drinking water project. There are others on the anvil who are going in for PPP. Today, it has been established that PPP contracts work. The question is to be able to formulate a right PPP contract. The documents of the PPP must be bankable.

So what we have said is that there is no use trying to formulate, we are trying to make some model PPP contracts. We are sitting with financial institutions asking if they would fund this. If they say they will, then I know it can work. If they don’t, we know it won’t work. With my experience in PPP, I have said that we will get to the municipalities later. Let us first see whether it is bankable - the concepts and the contours. Once they are bankable, it will work.

Q: One key factor will be pricing. Services and products will have to be priced. We are not used to paying for that?

A: You can have differential pricing in a city. In a township, it's a population of around 4-5-6 lakh population. In a poor area, you can have cross subsidy taking place. In more affluent areas, you can have a higher price. One needs to think of innovative methods of being able to charge, even if it is minimal.

In certain areas, people will be willing to pay provided they can sense. In the beginning, of course, there will be a resistance to it. But once, say for water, they see regular supply, 24x7 water supply and it's clean predictable water supply they will pay for it.

Q: But to get people to pay even a rupee extra for the train fare, we found how difficult it is. So will there be a political will to push these through?

A: They will be needed because every municipality has elected people. There will be political resistance. People will realize when there are some models for them to see. Until now, there were no models for people to see. When they see some models and know that it is working in certain places, people will have the confidence. Even politically, people will have the confidence that they can go and tell their voters that see you are getting this. You are paying for it and you can get it. However, until now, nobody believes anybody because the municipality provides nothing.

Q: Do we need a national PPP regulator of sorts or will it break down into various services?

A: You can't have again a one size fix for all PPP regulators. Every state must have its PPP regulator. You don't need a national PPP regulator. Every state can have a PPP regulator of various types of PPP projects. I think state governments will have to look at PPPs as a model for the future.

There just will not be enough funds to go around in any of our infrastructure; take our roads, states have gone in for roads. A lot of states have gone in for roads on PPP model, which are state funded on a PPP model.

Q: You said the time for Horizontal Urban Centres is over; we need Vertical Urban Centres. Now a vertical urban centre is called for a lot of planning, infrastructure has to be laid. It means we have to denotify land in large chunks so that somebody can come and set the infrastructure and sewage. Are we ready for that?

A: Today, our development regulations do not allow a higher floor area ratio (F.A.R), and I think this is wrong. It has got to be area specific. You cannot say that we will have 10-15 F.A.R in all areas; it has to be focused on particular areas, take the new areas; for instance, Dwarka in New Delhi, which are coming up. We have got to be using land efficiently and we got to be looking at F.A.R, there the infrastructure needs to be built. So where the infrastructure has to be built, you can build in an infrastructure required for a higher rise.

Now every government department whether it is the railways, in my own ministry the CPWD, the BDA has to be looking at more efficient use. Some of the army lands is not with the defence forces is not efficiently used. I am not saying commercialize but efficiently use it.

Q: You, infact, laid out the problem. All of this falls between various bodies. For instance, in Delhi we have often heard Mr Sreedharan complain that when he was setting up the Delhi Metro, his was a body approved by the government. Yet, he would get stalled by the NDMC and MCD. How do you ensure that everything is integrated?

A: Mr Sreedharan was right, he was stalled. I would have meetings every month and see that they were ironed out, we had to move on.

Q: Do we need a policy change here that says one government body is as equal as the other?

A: I don’t think so, if a ministry drives it, it happens. If you don’t drive it, you can have any number of regulators, it won’t happen. So you have got to be driving it, you have to see that the targets are met; you have got to see that all these obstacles come in the way. It’s a mindset change and I think this mindset change is happening.


Q: Is this mindset change happening enough to think we are unlike others who build for the future. We are catching with the past but we have got to catch up with the future very quickly. What are the second generation reforms that you need to do that even when you are working on reforms in the first generation yet to take place?

A: You take any sector; you have got to see where the delays are. Take roads, now one of our biggest delays is land acquisition. One of the problems in roads is not contractors, it is land acquisition. The land acquisition process is so truncated that you have the state government involved then road is lateral. By the time you go to another place, there is another set of officials dealing with it. You go another 15-20-30 kms, there are another set of officials dealing with it.

Land acquisition has been a huge problem for delay. Then there are all kinds of notifications issued. Some of these are very archaic, where we have got to speed up land acquisitions. I think the heart of land acquisition also lies in paying a fair price for land. The issue of land acquisition in our country is wrongly understood and is misunderstood because the government has not been paying the fair compensation.

What is fair compensation? - Fair compensation is the market price, it is replacement cost. Compensation must be based on replacement cost. It cannot be based on the last registered price when you are going through all these areas and that is the process, which is followed. That is why, we had this huge uproar on land acquisition, and I think fairly so.

People will say that the farmer or the person whose land is going cannot subsidise the project and that is what was happening.

Take a large irrigation project. They have calculated the land acquisition price for a large irrigation project, which is much less than the market price. When you say why you aren’t paying the full compensation, the answer which I got in one case was if we pay the right compensation then this project won’t be viable. So the farmer is getting lesser amount just to make sure that the project is viable.

In all our project calculations, I have proposed this many times that land acquisition should not be a cost of project viability. Land acquisition has to be social cost and it cannot be a part of project costs. I did this in NHAI; in land acquisition, when a cabinet approves it, it says this is the cost of the project minus land acquisition, which should be at actuals. Land acquisition should not be taken to be as part of project cost. Many project costs get thrown by the wayside because the land acquisition price is very high.

Q: How much is this climate of fear that we live in today? When I say climate of fear, I mean people don't want to take decisions because they could be taken to court, they could be thrown to jail, there would be media trials of them. How much of that is hampering urban development?

A: It's true that bureaucrats are a bit resistant to take decisions. They feel that five years later or when he is retired, somebody will ask a question when he has no access to records. In hindsight, everybody is very smart. They can look at why was this done so many years later. We have instances where everybody has come up with a formulation where it could have been done better.  It could have been done cheaper, it could have been done more economical. I think this hurts the process.

We must recognize this and we have to recognize this as a society. We have got to recognize this as politicians and as the media. The media has gone hunting to make news. If you were to analyze in the last two years, there have been so many stories in the media.  You should do a post-mortem of all what you criticized and all what came out of it. So, of course, things go wrong. Certain things are wrong, but that cannot become self-flagellation.

Q: Will it change because that could be one of the major set backs because we are seeing decision not being taken?

A: If you were to rush, sometime you need to see targets are met. You want to see this has to be done. There maybe some times where something is not followed but not where it impacts, whether it is prices or transparency. You have to move ahead.

Q: If the policies are cleared, won’t it be easy? If somebody follows policies then they cannot be accused.

A: No policy can be such that everything is included in it. Obviously, there are generalities in any policy. These generalities are what come up today. If the Delhi Metro did not find the same amount of criticism; I get so many letters - Delhi Metro is doing this and Delhi Metro is doing that. If you start going into this there will be no end to it, there will be no Metro. So do we want a Metro or we look at this combativeness among contractors? Everyone who gets something is very happy, who doesn’t get something, is complaining. First he complains to you, then he goes to the press and the press then makes out a story without knowing the full facts of the situation.

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