India: independent regulation called for

At a roundtable discussion in New Delhi hosted by sister-publication Infrastructure Investor, Gautam Bhandari, managing director at Morgan Stanley Infrastructure Partners and head of the firm’s Asian operations, called for the introduction to Indian infrastructure of independent industry regulators akin to the Civil Aviation Authority in the UK.

“While the intentions of the government officials are constructive, it takes longer to implement processes than in other markets, but then it’s a matter of concensus and achieving that is not easy, even in developed markets,” said Bhandari.

“The regulator(s) could be merely an arbitrator – there’s a place for that. And if you can speed things up, it lowers the cost of capital. But you can also have regimes where the regulator has a broader mandate to make rulings on the grounds of fairness. Not every eventuality can be envisaged over a 50 to 100-page contract that has to last 30-plus years.”             

He added: “The private sector makes a fixed investment on the day the contract is signed in the hope that a fair rate of return can be made. You need someone to come in and look at things and balance the interests of investors and citizens. It’s hard to put bureaucrats and politicians in that position given the pressure of public office.”

Bhandari cited the example of the UK airport regulator, the Civil Aviation Authority, which “reduced rates of return as it thought it was fair to do so, even though it upset the private sector”.

Arvind Mayaram, additional secretary and financial adviser in India’s Ministry of Rural Development, agreed that the government was under a lot of pressure, trying to understand processes for which there may be little by way of precedent given that infrastructure investment has only been prioritised relatively recently in the county’s history.

He said: “It’s a big learning curve and in some infrastructure sectors we make mistakes. But the system is merciless. When you’re in uncharted waters, you get very cautious and that slows things down. You’re trying to work out the road ahead.”

But he cautioned against seeing regulation as a panacea: “The problem with regulation is that it sets processes and systems in stone. But in an evolving situation, government policy must change to address constantly changing reality. So we need to be careful in thinking of regulation as the solution for all problems. In some sectors early entry of regulators might be a problem waiting to happen.”