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Analysis

A view through an infrastructure investor’s prism

Active policies to address the three issues revolving around the value, scarcity and contract enforcement that investors utilise to determine both investments and the required rate of return can help make policies useful.

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Perspectives on infrastructure assets vary widely: While investors focus on investment returns, policymakers analyse both financial and socio-economic benefits. It would be worthwhile for policymakers to view things through an investor’s investment prism because an understanding of the critical factors that shape investment decisions will help frame better policies to expedite Indian infrastructure creation.

The “raw value” of an infrastructure project is what a potential investor evaluates first. For example, in a renewable energy wind project, the wind potential of a site is what an investor evaluates. For a transportation project, the investor evaluates the potential passenger traffic. This so-called “raw value” is a huge determinant of the financial viability of a project.

Segregating infrastructure sectors and projects by such “raw value” can help government and industry alike to work towards directing infrastructure capital more optimally. Additionally, such analysis helps in framing policies for those sectors that deliver very substantial social and economic value but are not financially viable on their own.

A robust framework that helps determine “raw value” can aid all the stakeholders, especially the government, to work with investors and multilateral trade agencies to find financing solutions for such socially and economically relevant projects. Eventually, India needs to create an information repository of sorts that provides the global investor base information and access by asset type and investment potential.

Once the “raw value” of a project is determined, an investor tries to gauge what is called its “scarcity value”. Take, for instance, transportation projects. If the transportation potential of connecting City “A” with City “B” is attractive, then is building an airport to connect the two cities the most optimal infrastructure asset? That is, in spite of the traffic potential, is an airport a “scarce” enough asset to deliver attractive returns?

The investor will gauge whether the airport is likely to face competition from a competing train network or a highway. Being cognizant of the long-dated nature of infrastructure assets is important. Hence investors will have to gauge the “scarcity value” of the asset to determine the attractiveness of the asset over the long investment horizon and, therefore, eventually decide on their willingness to invest in the asset.

It is essential for the government to find a balance between allowing investors to make returns commensurate with the risk taken and allowing the public to have access to a well-priced and high-quality infrastructure asset. The twin objectives of consistency and transparency in policy are crucial in this regard.

The government’s ability to formulate and communicate the strategy effectively regarding not just sectors but individual assets is vital. To indeed expedite infrastructure creation, granular policy across industries will be needed, more so for much-needed greenfield infrastructure projects.

Apart from “raw value” and “scarcity value”, an investor considers a third factor: The quality of the underlying contracts signed for the asset. Investors look for high-quality counter-parties with whom to sign contracts. More importantly, the government’s ability to deliver a robust legal system for contract-enforcement, as also a more efficient system for conflict-resolution, will attract more significant investments.

Lowering the risk perception for Indian infrastructure assets is essential not merely to attract more investments but also to attract investments at lower financing costs. Reducing the cost of capital is going to be a significant driver of infrastructure projects through their improved financial viability.

Another area that merits attention is the possibility of the government working even more closely with Export Credit Agencies of various countries to offer foreign exchange hedges, while “importing infrastructure investments”. Solutions that not only reduce the legal risk in investments but also partially eliminate the foreign exchange risk can help boost investments significantly.

Active policies to address the three issues revolving around the value, scarcity and contract enforcement that investors utilise to determine both investments and the required rate of return can help make policies useful.

Policy frameworks can potentially be refined using these three key factors that shape investment decisions. Most importantly, one does not need to improve concurrently on all three fronts for all infrastructure sectors; incremental improvement on one element can provide a significant fillip to infrastructure investments.

(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. Views expressed are personal. He can contacted at [email protected] or @Taponeel on Twitter)

Analysis

Rafale, a political bomb for Modi

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Rafale deal scam

Within 48 hours after former French President Francois Hollande’s remarks re-ignited the allegations of crony capitalism over the Rafale deal, Modi government has remained on the back-foot, relying on weak denials and resorting to evasive narratives which places blame on the previous UPA government.

Over the past few days, there have been various statements from India’s defence ministry, the French government, from Dassault Aviation, a couple of political party press conferences and most recently a statement put out by the Finance minister Arun Jaitley.

At the end though, this is where these stakeholders stand:

1. Modi government claims it had no role in selecting an offset partner.

2. French government also claims that neither it had any role in selecting an offset partner.

3. Dassault Aviation says that the selection of Reliance was their choice.

4. Former French President Hollande, the one who negotiated deal said that Reliance was forced upon them by the Indian govt.

Now, if we look at the timeline and connect all the missing dots, we reach to the following conclusion. In March 2015, Anil Ambani’s Reliance acquires Pipavav Defence, an acquisition that it has used as a justification for being chosen as an offset partner in the Rafale deal, claiming to be a leader in different areas of defence manufacturing.

A month later, in April 2015, the Prime minister suddenly appears in Paris and announces a huge change in the earlier Rafale deal, that by all accounts, takes everybody by surprise. Anil Ambani, who attended Modi’s meeting with defence chief executives in Paris, reportedly held a long discussion with Dassault chief Eric Trappier.

While formal incorporation of Dassault Reliance Aerospace Ltd took place last year in February, the joint venture between Reliance and Dassault began functioning as early as May 2015, a few weeks after the announcement. All this lends credibility to Hollande’s full remarks to AFP, which state that Reliance’s name came in the context of a ‘new formula’ of negotiations in the Rafale deal, decided by the Modi government after it replaced UPA at the centre.

Hollande made this disclosure to refute the allegation that he may have favoured the Anil Ambani led Reliance group as a quid pro quo for a business deal struck by his partner, Julie Gayet. Last month, the leading Indian daily. The Indian Express reported that on January 24, 2016, Anil Ambani’s Reliance Entertainment entered into a deal with Julie Gayet’s firm Rouge International to jointly produce a French film and within next two days Hollande, who came as a chief guest for the Republic Day parade inked a memorandum of understanding with Narendra Modi for the purchase of 36 Rafale jets in New Delhi.

Subsequently, Anil Ambani’s Reliance Defence officially became part of the offset programme of Rs 59,000 crore Rafale deal through the Dassault Reliance Aerospace Limited — a company in which Ambani holds a 51% share and Dassault the remaining 49%. However, the ex President did not reveal the name of person who proposed Ambani’s firm but the way he asserted himself, points the finger of suspicion towards people in high places that had direct access to the Prime Minister.

In spite of government’s stonewalling the information on the Rafale deal, questions on the controversial contract have kept rising in recent months. Most of the opposition parties have accused the Prime minister of bypassing the well structured process to strike a deal with France which involved a three times higher price per aircraft than the price negotiated by the earlier UPA Govt. The no of aircraft also by magic dropped from 126 to just 36, HAL, the Public sector undertaking being replaced by Anil Ambani’s firm with zero experience in defence equipment manufacture.

The government could have easily avoided the controversy and stopped it from becoming a major scandal by taking opposition leaders into confidence about the details of the agreement or it may have appointed a joint parliamentary committee (JPC) to go into the details of the deal. On contrary, it has used a combination of silence — a dogged refusal to reveal the price of the aircraft and blaming the earlier UPA govt for its failure to finalise the deal. It kept on harping that it got a more competitive price than agreed upon by the UPA Govt without even revealing the actual price.

This tactic of obfuscation has begun to unravel. On one hand, the ex-President of France has forcefully contradicted the government’s claim that it had nothing to do with the choice of Reliance as an offset partner, the ex-chairman of HAL has also refuted Defence Minister Sitharaman’s charge that it was poor health of Hindustan Aeronautics Ltd (HAL) which was partly responsible for the failure to clinch the Rafale deal during UPA’s regime.

The former HAL chief, T. Suvarna Raju, who retired on September 1, in an interview to Hindustan Times last week said, “If HAL can build a 25-tonne Sukhoi-30, a 4th generation fighter jet that forms the mainstay of the air force, from raw material stage, then what are we talking about? We could have definitely done it”. Raju further added that why only Sukhoi, HAL had maintained the Mirage 2000 aircraft, which was also manufactured by Dassault Aviation, for last 20 years and was involved in the Mirage upgradation programme as well.

The ex Chief while countering Sitharaman’s claim that HAL was dropped from the deal when the UPA was in power since it couldn’t agree on the terms of production with Dassault, said, “Dassault and HAL had signed the mutual work-share contract and given it to the government. Why don’t you ask the Govt of India to put the files out in public? The files will tell you everything.

Sitharaman gave another flimsy argument to justify Modi government’s decision to buy just 36 Rafale fighters in “flyaway” condition on grounds that the air force would not have the “paraphernalia” to induct more than two squadrons of 18 aircraft each at a time.

This argument falls flat in the face of the fact that four former IAF chiefs had asked for a minimum of 126 fighter planes, giving a valid reason that the air force is currently way too short of its authorized strength of 42 fighter squadrons and that it has ample experience of creating the infrastructure to accommodate the future induction.

You don’t have to be an expert to see through her claim that no due process was followed in securing the deal. The actual signing may have taken place in September 2016 after the cabinet committee on security formally approved it, but Narendra Modi jumped the gun in April 2015. On his first visit to France, Modi unilaterally announced that India would buy 36 Rafale fighters. Three months later, the earlier agreement with Dassault for 126 jets was cancelled, and HAL was cut out of the picture.

Back in April 2015, less than a year after his sweeping victory, Narendra Modi was on cloud nine who had the swagger of a conquering hero who could get away with anything — no questions asked. Now with the latest revelations tumbling out on Rafale every day, that promise of running a clean and transparent government is just evaporating in thin air.

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Analysis

Over 4.5 lakh entries in ‘sexual offenders’ database, NCRB to maintain record

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National Database Sexual Offenders

New Delhi, Sep 20 : In a first, the government on Thursday came out with a National Database on Sexual Offenders (NDSO), containing a list of 4.5 lakh convicts with photos of about 3.5 lakh of them available.

The offenders face charges of rape, gangrape and eve-teasing.

The database, which was rolled out by the Ministry of Home Affairs (MHA) along with Women and Child Development Ministry (WCD) here, will be maintained by the National Crime Records Bureau (NCRB).

The NDSO which is accessible only to law enforcement agencies will assist in effectively tracking and investigating cases of sexual offences and employee verification.

The registry which was approved by the Cabinet in April 2018 makes India the ninth country in the world to set up and maintain a national database of sexual offenders.

According to MHA, the state police have been requested to regularly update the database from 2005 onwards. The database includes name, address, photograph and fingerprint details for each entry. However, the database will not compromise any individual’s privacy.

MHA has already released a grant of Rs. 94.5 crore to states/UTs for establishing cyber forensic-cum-training laboratories to strengthen cybercrime investigation and conduct training programmes to enhance capabilities of police officers, public prosecutors and judicial officers.

According to the WCD ministry, the sex offenders listed in the database will be classified on the basis of criminal history to ascertain if they pose a serious danger to the community.

“It is a matter of great pride and joy as two initiatives that my Ministry (WCD) and I had been pursuing for three years have been executed. The launch of National Registry of Sexual Offenders and Cybercrime Reporting Portal is one more step taken by our government for the safety of our women and children,” Union WCD Minister Maneka Gandhi said.

Another web portal, “Cyber Crime Prevention Against Women and Children (CCPWC)”, an initiative under the Nirbhaya Fund was also launched which will enable complainants in reporting cases without disclosing their identity.

“Government has taken several measures to check crime against Women and Children, including provision of stringent punishment and creation of modern forensics facilities to improve investigation, creation of the Women’s Safety Division in the MHA and launching of Safe City projects for Women’s Safety,” Union MHA minister Rajnath Singh said.

The complaints registered through this portal will be handled by police authorities of respective State/UTs and complainants can also upload the objectionable content and URL to assist in the investigation by the state police.

The NCRB will proactively identify such objectionable content and take up with intermediaries for its removal. For this NCRB has already been notified as the Government of India agency to issue notices under the IT Act.

“A positive aspect of this portal is the provision for anonymous reporting, which will encourage more people to come forward with such complaints. This portal comes as a relief by providing time-bound solutions to a huge number of women and children who are being exploited in cyber space,” Gandhi added.

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Analysis

Saab is interested in Indian fighter jet deal: Swedish official

The Saab Gripen will be contesting with the likes of the Russian MiG 35, Dassault Rafale, Eurofighter Typhoon, Boeing F/A 18 and Lockheed Martin F-16 for the upcoming deal.

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Amid the raging controversy over the Defence Ministry’s procurement of the Rafale fighter aircraft from French firm Dassault Aviation, a senior Swedish official has said that his country’s firm Saab, in its Gripen aircraft, has the requisite experience to contest for the upcoming Indian deal for manufacturing 110 new fighter jets under the Make in India programme.

“I know that Saab is interested, they want to be a part of this procurement,” Teppo Tauriainen, Director General for Trade in the Swedish Foreign Ministry, told IANS in an interview here.

“They think they have something good to offer that will be of interest to India,” Tauriainen said.

“They, of course, know what the expectations of the government is in terms of local production and cooperation with a local partner.”

India is expected to select by the end of this year one fighter aircraft that will be manufactured by the private sector under the Make in India programme for supply to the Indian Air Force.

The Saab Gripen will be contesting with the likes of the Russian MiG 35, Dassault Rafale, Eurofighter Typhoon, Boeing F/A 18 and Lockheed Martin F-16 for the upcoming deal.

While MiG has already said that it will have state-owned Hindustan Aeronautic Limited (HAL) as its local partner, Indian companies like Tata, Reliance Defence, Mahindra and Adani are in the fray for local partners in the project that is expected to be worth over $20 billion (Rs 1.44 lakh crore).

Tauriainen said that for Saab, contesting for the deal will be nothing new as it has signed a similar deal for Gripen with the Brazilian government with Embraer as its local partner.

“I have myself visited the Brazilian partner, Embraer, and seen there are a lot of spin-offs locally in the Brazilian economy from this fighter jet deal,” he said.

“So, I think for Saab, as a company, it won’t be unusual to do it the way the Indian government wants it to happen.”

During his visit to Sweden in April this year, Prime Minister Narendra Modi had said that defence and security have emerged as an important pillar of the India-Sweden bilateral partnership.

“Sweden has been a partner of India in the defence sector for a long time. I am confident new opportunities for cooperation in this sector will arise in the future, especially in defence production,” Modi said.

During that visit, an India-Sweden Partnership was also announced with a fund of 50 million Swedish kronor (around $5.6 million) for innovation cooperation in the fields of smart cities and sustainability.

Asked what steps have been taken in this connection, Tauriainen said that the dialogue for these projects has started though none of these projects have started operating.

“But we have come quite far to identify areas where we think there is a potential to do cooperation,” he said.

He said that sustainable technology is a broad area and is very much related to how cities are built in terms of transport, energy, waste and waste water.

“There we have some interesting experiences and I hope that is of relevance to India,” Tauriainen said.

“Some technologies we have already tested in Sweden. Other technologies will have to be adapted to Indian conditions,” he added.

In Sweden, waste is actually used to generate power and only one per cent of the waste goes to the landfill.

Asked about the presence of around 180 Swedish companies in India and their role in the Indian economy, Tauriainen said these are doing good business despite “some limitations”.

“They wouldn’t mind if those limitations are taken away. But they are interested in the Indian market and most of them are interested in expanding,” he said.

(Aroonim Bhuyan can be contacted at [email protected])

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