The economic impact of regime change on infrastructure projects in India
By: Vindhyeshwar Kumarpandey
Tags: Infrastructure Projects, Raipur Skywalk, Infrastructure, Nip

Infrastructure development projects form a large part of the proposed economic development plan of any nation. It was thus of no surprise when the Government of India launched the National Infrastructure Pipeline worth 102 Lakh Crore Rupees for the next five year period with an aim to create a forward outlook on infra projects which would lead to job creation, improved ease of living and sustainable growth opportunities for all. Such infrastructure projects not only involve large scale investments by the government but also have huge investments from the private sector including international investors as well. With such vested interests in these infrastructure projects, it becomes extremely important that these projects are completed successfully and in a timely manner to reap the benefits that they offer, and any hindrances to their successful completion are dealt with in a swift and efficient manner.

However, it has been observed in the past few years that the newly elected governments often roll back schemes, policies and projects that entail huge investments and require large tracts of land; announced by the previous government. This phenomenon has become more prevalent in recent times across all major political parties and states of India.

While policy changes with the change in government are understandable and rollbacks may be good to differentiate political parties from their predecessors, they send the wrong signal to private investors, especially at a time when states need them the most, amidst the economic downfall. Given the grim prospects of projects being scrapped or reviewed by a new regime, companies may shy away from picking large scale infra projects in the first place and this may lead to many foreign investors pulling up funds from infrastructure projects in the state.

There have been a large number of cases where regime change has affected the development of infrastructure projects. One such case is of Andhra Pradesh where the new government scrapped several land projects worth hundreds of crores and decided to review the Purchase Power Agreement (PPA) within a month after coming to power in the state. In a similar case, the new Maharashtra government decided to alter, review and scrap several infrastructure projects started by the previous government including the shifting of Mumbai metro car shed which would cost more than 200 crores. Although in both these cases, the respective governments had announced their intentions to stop these projects even before coming to power and cited their difference of opinions regarding the usefulness of the project publicly before reviewing them, the economic losses are still huge.

If you look a little closer to home, situated right in the middle of Raipur, the capital of Chattisgarh, is the infamous Sky Walk, a 1.5 km lane to facilitate the movement of pedestrians in the busiest part of the city. The usefulness of this dream project of the previous state government was a highly debated issue in the public forum from the moment it was announced, with many experts and opposition leaders questioning the purpose and the perceived benefits of the project. The project initially estimated at around 50 crores was put on hold when the current government took over the reigns of the state in the year 2018. Since then, the project has undergone multiple reviews by various committees, while the people of Raipur are constantly reminded of the unfinished construction work by looking at the ugly gigantic structure that just sits there glaring at the citizens, occupying space in an already congested road jammed with citizens. The costs which have now been overshot by around 50 percent of the original estimation due to the delays, further irk the citizens of the city. While the original contractor of the skywalk has abandoned the project altogether and moved out of the city, the citizens still await the fate of the Sky Walk, and whether the massive structure would be finished or demolished remains to be seen.

The delay caused in decision making, in this case, costs huge as the delay in completion of projects entails the risk of cost escalation and denial of intended benefits. The project was estimated to cost 50 crore rupees in the first place which has now increased to 75 crore rupees. All this cost is incurred from the public and is a big amount for a developing state. This kind of problem also risks maligning the development-friendly image of the state, which the state government has worked hard to achieve in front of investors and they might refrain from investing further in the state. This problem becomes more serious in the case of foreign investors as they are now allowed to invest 100% in construction development projects.

In addition, this project has caused several other problems which aren’t directly related to cost but has impacted the common public a lot. People in Raipur are facing trouble in commuting across the area due to the increased congestion owing to the SkyWalk, causing disruptions and accidents. The surrounding areas have experienced an increase in air pollution as a result of the unfinished structure and its construction materials. It has also impacted businesses drastically for several people living nearby as customers find it difficult to visit this place.

In order to increase the market trust and provide a cushion against possible policy changes due to change in regime, the government may create a National Infrastructure Board(NIB) on the lines of Insolvency and Bankruptcy Board of India. It will assess the contracts of all the projects worth more than a certain threshold and then decide about its implementation. Once it gives a green signal to a project, no change should be possible. A dedicated dispute resolution commercial court with a permanent full bench should be attached to the board. It would settle the dispute between the investors and the governments in maximum 90 days for projects less than a given amount and in maximum 180 days for the projects for more than the amount. Even though a similar idea was floated by the Central Government for setting up a tribunal in the year 2016, the idea did not move past the ideation stage, however, given the recent rise of policy flip flops due to regime change, setting up of such a tribunal has further gained importance.

An ePortal should also be created to make public all the data regarding projects costing more than a certain amount. This data should include the date of commencement, original estimated cost along with the original estimated date of completion, current estimated cost and current status of the project.