February 24, 2018

Speaking at Global Business Summit – 2018, in New Delhi

Thank you very much ma’m, distinguished ladies and gentlemen. As usual, it’s indeed a great pleasure and privilege to be amongst friends at the Global Business Summit to discuss what has happened, what is on the cards and what the future looks like. While, of course, we are here to discuss about infrastructure and the journey of infrastructure going forward, it may be interesting to also have a little bit of a bird’s eye view on what was the thinking before this government came in and what has changed since then.

I believe the honourable Prime Minister did touch upon this subject. I am sure the honourable Finance Minister must have referred to some of the history, some of the legacy that we have inherited. But if we take a cue from what Steve Jobs had said and 24th February is Steve Job’s birthday. He had suggested, let’s go, invent tomorrow, instead of worrying about what happened yesterday. And in some sense, this government ever since it came into power in May of 2014 has focused on providing a better future, a better tomorrow to this nation, rather than worrying about the way things were done in the past.

I remember on more occasions than one, particularly, when you are a new rookie Minister, officials will come up to you and say, ‘but sir, this is how it has been done all these years.’ And grappling with the past, grappling with this legacy is always quite a challenge, because when you are trying to change the ways of the past, the resistance is tremendous, is enormous. But it was always a matter of great comfort to all of us in government that Prime Minister Modi had a steadfast focus on a better future for the country, and a sustainable future for the country.

I remember, on more than one occasion when we had to take certain very challenging decisions, certain decisions which would not have looked very politically correct, he would always ask a simple question – ‘Is this decision in the interest of the nation? Is this decision in the interests of the people of India, or is it politically correct?’ And whatever was necessary for the good of the country, for the good of the people of the country always prevailed rather than the political dimension to an issue.

And that strengthened the resolve of all of us in government to invent a tomorrow, rather than worry about the legacy, rather than worry about the way things were done in the past. Results have started showing things are now falling into place. But it’s also important to remember that what one inherits can’t be wished away totally. One has to resolve the past; one has to ensure that the past does not drive down the future. And in that sense, it’s very essential that even when we look at infrastructure, one will have to look at the baggage that was inherited along with the infrastructure story.

In fact, when I was the Power Minister until some time back, Power and Coal both, and Renewable Energy were under me and we were trying to understand the problems in the industry. What we realised was that on the one hand, we have 300 billion tonnes of coal reserves, but on the other, we are perpetually starved of coal. We have huge capacities on the anvil in the power sector, but most of them are at different stages of development, turning sick, becoming overpriced, and a certain over-capacity, over-hang in possible capacity was dragging down the entire sector.

And while generation, and sufficient generating capacity was on the anvil, there was hardly any effort to try and resolve the transmission problems, there was hardly a focus on what was happening on the distribution side. And, therefore, in government we took the path of a very holistic, a very comprehensive approach systematically addressing the concerns of each element of the value chain, each element of the supply chain on infrastructure issues, thereby ensuring that the country does not once again fall into the trap of possible sudden spurts of good growth and then years of despondency.

In fact, I remember when I came into government, large parts of the country, particularly, in South India had to pay as high as Rs 9, Rs 10, Rs 12 for every kilowatt hour of power, particularly, during peak hours. Whereas other parts of the country were flush with sufficient or excess capacity, and the biggest challenge was to ensure that transmission lines reach the nook and corner of the country. And I think in the first two years of our government, the maximum focus was given to transmission capacity to creating one nation, one grid, such that today, India has the ability to transmit power through the length and breadth of the country, as and when required, so that we never ever have to once again look at those high price points of Rs 9 and Rs 12.

Of course, a lot of people in industry would keep questioning the wisdom of having very large rates of power for industry, for commercial establishments, but I am on record more than once to say that that is a necessity, that is the need of the country to meet the requirements of agriculture, to meet the need to provide affordable power, affordable energy sources to the poor of this country. And I am sure as a nation, all of us collectively, care for that section of society which has not enjoyed the benefits of growth, not enjoyed the benefits of a better future.

And to that extent, this cross subsidy between industry and commercial establishments and agriculture and the poor has been justified. But what was not justified was the inefficiency in the system. We tried to address that through UDAY, the Ujwal DISCOM Assurance Yojana, where we took a very-very structured view about the distribution companies which were largely the source of maximum inefficiency. The past debt in the distribution companies was over $60 billion, nearly $70 billion for that matter – $70 billi0n, and accumulated losses were about $60 billion.

That was dragging down the performance of the distribution companies, dragging down the ability of distribution companies to procure power, and therefore, we were never able to make sure that everybody gets power 24/7. In the UDAY scheme, we took an approach of addressing the past, providing a viable roadmap of 4 or 5 years in which the present, the efficiency levels can be improved, and also provided for a severe disincentive going forward for any further losses or inefficiencies that these distribution companies may continue to have.

The first phase has been immensely successful. States were made to take over 75% of the debt that the distribution companies had accumulated, and this debt was largely accumulated because of political reasons. After all, states had never allowed the cost of power to be really passed through to the consumers, and therefore, states had to take on this 75% of this $70 billion debt and through that, I think a large part of the losses that were being suffered by the distribution sector were addressed. They are down to about 50% of what they were about 4 years ago.

In terms of efficiency improvement, about 4 or 4 states – Haryana, Madhya Pradesh, Uttar Pradesh, Chhattisgarh, some of these states have been able to do quite well in terms of improving the efficiency of operations – Andhra Pradesh and Telangana. Surprisingly, even Tamil Nadu has done quite well in bringing down the losses, though they give a lot of free power, but they factor it in in their operations, in their operating ratios or efficiencies. But now is going to kick-in the provisions made to bring a hard stop to their inefficiencies.

Going forward, if these distribution companies continue to make losses, unlike in the past when banks were merrily lending money to these DISCOMs without really assessing their viability, the safety of the money, but lending money nevertheless, considering that these were state government-owned entities, have been advised not to lend money to fund these losses. And the DISCOMs will have to fund their losses through state support, through the state exchequer.

And this paradigm shift in the working of the distribution companies, this provision to provide a hard stop to being able to fund their losses at the expense of public sector banks is really the most important aspect of the power sector distribution company reforms. Because we have made it absolutely mandatory that banks don’t provide support for losses, states have to either guarantee any further fund raising or provide the funds for these distribution companies. And I think there can be no better incentive to tone up to improve the efficiency, to reduce political interference in these companies than the fact that they will have to pay for it from their own budgets.

And I just gave this example to reflect the approach of this government to think in terms of a 360 degree solution when it comes to setting the infrastructure sector right.

In fact, in the railways too I had a very similar experience. It’s only been about 5 months since I have been in the railways. But I have had an amazing experience in these five months of how Prime Minister Modi in the last 3 years before I came in was able to move the needle from a century old railway to not only prepare the railways to connect with the most modern technologies, but also start looking at the future. And in that sense, the railway system which had signalling system, which was probably a 100 years old, which had huge backlog in track renewals causing accidents day-in and day-out, where passenger amenities have deteriorated over the years, where the morale of the entire railway family was at abysmally low levels.

In that situation, to provide almost 3 times the investment that was being earlier done on the rail infrastructure in a competitive framework where there is a lot of competition for public spending. I mean, typically, politically, every government wants to focus its expenditure more and more towards the social and welfare sector which gives very quick short term gain, but may not necessarily be the best way to make long term sustainable growth of the country.

But this government has ensured that money no more is a constraint, investment is not a constraint when it comes to setting the railway infrastructure in this country right. You will be happy to know that in the last 3-4 years, the capex of the Indian railways has trebled from what it was five years ago. Between 2009 to 2014, the Indian railways had an annual average capex of about Rs 48-50,000 crore, that is about $8 billion. Today, we are looking at a capex of $22-23 billion in the railways annually. And over the five year period, we would have invested more money in absolute terms in the railways than has been invested in the last 50 years.

And what are we trying to do? We are actually in the railways working with four levels of technology. We have a century-old signalling system, or a system which was largely built by the British, the total amount of addition that was done post independence until 2014 was a very small percentage of the total system that we inherited, but with large parts of technology being 100 years old. Then there is a certain technological intervention which came in about 40-50 years old, which was things like the Rajdhani Express. The little bit of a semi-high speed train that we have in India is reflected in the Rajdhani, the Shatabdis and the Durontos, which were introduced in 1969. We have hardly had any real major technological growth in terms of speed in the railways between 1969 and now.

In fact, he coaches that we are making and which are being used for so many years have two designs; one is an ICF design, an Integrated Coach Factor indigenous design, which is prone to accidents, prone to fatal accidents at that. And then there is an alternate design, the LHP coach design. It’s a German design which we had first brought in about two decades ago. It’s a 30-year old German design. But even that 30-year old German design barely accounts for 10% of the coaches that are used in the Indian railways, and as is the typical thinking that prevailed before we came in they were used only in the premium trains, the Rajdhanis and Durontos.

But the poor man, the common man who travels in the railways was destined to go in the ICF coaches. Prime Minister Modi took a call that India should discontinue manufacturing ICF coaches, and we have been gradually bringing it down by June of this year. India will completely stop manufacturing ICF coaches, and will only go in for, even now, the 30-year old design for want of a better alternative immediately. But still a better, safer alternative than what we have been doing all these years.

So, here we have the second level of technologies which may be 30 years old, 50 years old in the railways, for want of adequate capacity to change over, switch over immediately we will certainly have to continue with that for some more time.

Then we have the bullet train project. Of course, there is a lot of criticism why India is introducing the bullet train in the country. But at the same time, when we brought in the Rajdhani in 1969, there was a lot of criticism, even why we brought the Rajdhani in ’69. The then Chairman of railway board had opposed that decision also. That was the thinking in this country.

But I do believe the people of India should not be consigned permanently to be using technologies which are decades old. I think the people of India deserve a better deal. And, therefore, the bullet train is only the first of many such new interventions where we are going to bring in the most modern technologies to serve the people of India. And that’s the third level of technology; it’s a tried and tested technology. By the way, the Shinkansen which we are setting up was introduced in Japan in the year of my birth, and I am not very young anymore.

So, we are still at the latest level, something which is being criticised by some, even some economists and journalists, forget the opposition party. But here also, we are still bringing in something, though it’s working well, it’s working well in the world, zero accident, near perfect punctuality, the most modern system. And we don’t want to take anything second-best for this country. This country deserves the best.

And I am delighted that at Magnetic Maharashtra, we had Sir Richard Branson come in to Mumbai only last week, and we are now looking at introducing in India the Hyperloop, which is looking into the future, going even one step ahead of the bullet trains that we are bringing in. Because we do believe that India has that unique opportunity to leapfrog the technology interventions, leapfrog technology advancements, and reach a stage where India becomes not just a modern nation for our people, but it also becomes the manufacturing hub of all these technologies, which will then help us to make them affordable for the people of India and also serve the rest of the world through our aggressive Make in India programme, from India to the rest of the world.

And that’s exactly what we plan in the bullet trains. The part of the deal is that the technology comes to India. Shinkansen rolling stock coaches are manufactured in India. The Hyperloop, in fact, would probably get the first port of call in India. And Sir Richard Branson is already, and smartly so, visualizing that if it gets manufactured in India, he will be able to make it affordable for the rest of the world. And that ladies and gentlemen, in some sense, reflects the changing thinking that this government has brought on the infrastructure sector. We are now looking at replacing all those century-old technologies, again, with the most modern in the world.

I will give you one more example of the railways which I hope will gladden your hearts. And I am sure everybody in this room must have had at least one train journey in your life, all the Indians? Would there be anybody who has never travelled in a train in this room? Not you Rajan, certainly! Well, Ludhiana, it’s very good to go by train. May be Vineet? You have? That’s a delight to hear.

Well, do you know the signalling system in India is still the red, amber, yellow, green, whatever, I don’t even know what the colours are. It’s still a 100-year old system, slightly better than what it used to be earlier – the bar going down to stop the train and go up. But a 100-year old signalling system, the cause for maximum number of accidents, the cause for keeping the whole infrastructure underutilized is our signalling system.

When this government decided to change that, what did we do? I got pressure from every possible source to look at intermediate solutions, which have been developed maybe 50 years ago or 30 years ago. But we decided to go in for the best in the world, the ETCS, level 2 , which in the entire world today, there is barely 20-25,000 kilometres of ETCS-2. But it’s a proven technology, ETCS-2, and the most modern technology available in the world today. And India has decided to go in for ETCS-2 signalling, not on important stretches, not on the Mumbai-Delhi stretch, not on the golden quadrilateral which is the premium rail lines, but across India, 1,20,000 kilometres of rail line, but the most modern.

But I will tell you, there are 6 or 7 suppliers in the world. I have met with all of them. Each one of them has tried to convince me that this is too ambitious, you shouldn’t go in for such a big project. The suppliers are telling me I shouldn’t go in for a roll-out of 1,20,000 kilometres in 6 years. When I told one of them, okay, you can walk out of the room. He said, no-no, but I want to participate in this order.

And what is my approach? When I give this contract out with a 6-year timeframe, the parties know that they have a whole lot of business following and they don’t have to grapple with short-term production plans. They can plan a whole 6-year story ahead of them. Obviously, it will attract them to bring those technologies to India and manufacture in India, because that will be the only way they can be competitive. And when 6 or 7 of them are going to compete for this business, I do hope to reduce the pricing, the initial estimates by not less than 20-30%.

My own internal target is a little more, but I won’t spell it out right now for want of credible confirmation that I will achieve my targets. But if my LED story is anything to go by, and I believe the Prime Minister also mentioned it yesterday, if the LED story where we were able to bring down prices by 87%, because of volumes, because of economies of scale, because of honesty in procurement, then I am very confident that even in signalling we will make it at a price, which will be far better than what any other country in the world has got.

And I have been telling all these suppliers, you should be loss-leaders, take this order at a loss. Because you will not only get a 1,20,000 line kilometres, you would be able to manufacture in India and make it competitive, but you will also be able to then contract across the world. And nobody would be more competitive than the guy who gets the Indian order, because he would have already achieved economies of scale, manufacturing to scale. And India would also in the next 6 years add about 50% more lines at the speed at which we are expanding our rail network.

So after six years, he would probably be again the most competitive for the next level of 40-50,000 – 60,000 km of rail line signalling. So, in one sense, India now has decided that we will lead the world when it comes to technology interplay, when it comes to providing the best of technologies to serve our people, and signalling has such a holistic dimension for the railways – it improves safety tremendously, it improves line capacity, because I’ll be able to use that same line for probably two or three times the traffic, given the fact that the headway between two trains will come down from nearly 20-25-30 minutes to may be 5-7 minutes with better signal.

We could actually have driverless trains also, because now the trains would be talking to each other through computers. And then look at the concomitant benefits I get, for this I need to a set up a complete Wi-Fi system across the Indian railways. Once I have that I can setup a full CCTV camera system on every coach in every train, on every station, in every office and, therefore, provide safety to the women, to children, passengers.

Once I have the Wi-Fi system, I can have every station providing Wi-Fi to passengers. I am just trying to reflect the holistic thinking when it comes to preparing India with better infrastructure, with a better future for the people of India. Of course, one important thing in all of this is the fact as Prime Minister Modi mentioned yesterday to bring in competition, to bring in the competitive spirit.

Earlier, the same project of 120,000 km would have been divided between the six suppliers, 20,000 kms each. That was the way things were working. So when India needed 10,000 wagons, there was a bidding process, but the lowest bidder would get 30 per cent of the order, L2 would get 22 per cent of the order and L3 would be 20 per cent of the order. What was the incentive to bring down prices, you knew you would get some order at least. We are reversing that thinking. We are saying, winner takes it all.

So, now you compete to get business at a level which will make you huge, which will make you efficient, which will make you really cost competitive, eliminate the inefficient players from the system. And my own sense is, this competitive spirit is going to really help expand our Indian infrastructure at much faster speed, with higher degrees of transparency and also ensure that it remains affordable for the people of India, similar to the fact that let’s take the LED story, the total investment in 800 million LED bulbs that have been sold in India in three years – 800 million, they have never been sold anywhere in the world, not even China at this level.

Total investment in that 800 million LED bulbs that we have sold, in three years, by the way, it was about 1 million a year before 2014. One million! And we have done 800 million in three years. And what was the impact of that? The country has invested less than a billion dollars, but the country and the consumers of India are saving $6 billion every year in energy bills for an investment of $1 billion.

Of course, I was just talking to the editors of Economic Times, while waiting for my talk to start, and I think it’s time for me to wind up, but I was asking them a question. One alternate way to grow, while we are trying to grow in this fashion where we are bringing in economies of scale, we are bringing in competition, we are bringing in high levels of efficiency and integrity in government processes, there is another model of growth about which I wish all of you would reflect and I would love to engage on a discussion or a debate on this subject sometime, may be Economic Times or the Times Group can set this up someday.

There is another way to grow in this country. It’s something like the Kaun Banega Crorepati style of growth. Who wants to be a millionaire? Remember that American show ‘Who wants to be a Millionaire?’ Which we emulated as Kaun Banega Crorepati. Of course, in India, we actually did better than that. We said ‘Who wants to be a billionaire.’ And this is a process that is reflective in the huge amount of bank lending that this nation saw between 2004 and 2014. While it’s not the subject for which I have been invited to talk here, but it does have a reflection on infrastructure, which is why I am raising this story.

Because infrastructure development in a planned fashion, in a fashion that meets the needs of the country is what was the need of the hour. But on the contrary, if banks were to start indiscriminately lending money and we saw the growth of bank loans from about 18 lakh crore in 2004 to about 53 or 54 lakh crore in 2014. That’s nearly trebling the banks credit portfolio in a span of 10 years and then ten years span had a GDP growth of about 6.7 per cent.

Now any economist in this room if you were to try and reflect on what was the growth story during that 10-year period and whether that growth story was largely resting on an indiscriminate bank lending, very often without adequate collaterals, very often without adequate scrutiny and was the growth on the back of huge amount of debt that the banking system was accumulating, which was ultimately, of course, being spent in the economy, large part of it. Some of it may be to buy yachts and aeroplanes.

But that money was being spent in the economy creating a false sense of growth happening in the economy and I asked the Economic Times editor that suppose, very often we are being criticized that bank credit growth is very low in your government. In the four years that we have been in government, bank credit growth has been barely what, 6, 7 or 10 per cent, may be even lower than that each year. But initially, people like me were also disturbed about it, because we were all used to our typical thinking of gross capital formation. We were looking at private sector investments and we were all initially quite worried, but now as the things are coming out and we realize what was the nature of that bank credit and where was that money being used effectively or inefficiently.

One rarely realizes that this could be an alternate model of growth that possibly some economist someday may write about where instead of the government increasing its fiscal deficit, which, of course, was also done during that period. Fiscal deficit was allowed to slide within a year in 2008 from 2.9% to 6% within one year, but I believe some people think that is fiscal prudence bringing down fiscal deficits that this government has focused on is being criticized as fiscal imprudence – New economics. New India- New Economics, probably I’ll have to learn that someday.

But if one was to do an indiscriminate lending, the government’s balance sheet would never show that lending, that credit growth or would not show the increased borrowings. But the banks which lent this money would actually be fuelling an artificial sense of growth which then ultimately someday is going to come to roost, and as you try to clean up the mess and all of these things come out, obviously, the people of India are going to be agitated at what was happening all over these years. How was the economy functioning, what were the tests and checks that were there in the economic system?

Because, after all, even in the power sector which I mentioned to you about, I had a 100 Giga Watts of unfinished projects, most of them with huge cost overruns, with no demand for that power, but financed by all of these irregular loans or loans given indiscriminately possibly at that time showing huge amount of economic growth, though it wasn’t all that huge also, but except for a 2-3 year period. But that growth coming on the back of bank lending and a debit on the bank’s balance sheet which today is coming out to be seen as something which was irregular, something which was possibly also at times motivated, something which was also at times given out for extraneous reasons. And I think it is that which actually dragged Indian infrastructure down.

Today, very often, you hear reports of Plant Load Factors being low in the country. I am amazed when I read that article that what is the understanding of the people who talk about this. If you increase the denominator hugely, even beyond what the nation requires and indiscriminately invests on capacity, then, obviously, the Plant Load Factor is going to be low. The denominator is gone up far beyond what the nation needed.

So, I think the time has come for India to look at effective infrastructure growth, modern technologies which help India grow in a fashion where we can engage with the rest of the world, keep costs under control. I mean, the same LED bulbs if I had continued to purchase at Rs 300 plus, which was being done before 2014, maybe I could have added a few points to the GDP growth of this country also at the cost of the people of India.

So we have a situation where we are now looking at transforming the mindset of this nation, transforming the mindset to start looking at integrity, transforming the mindset to start looking at technology, transforming the mindset  to start looking at efficiency, transforming the mindset to become more people-centric, transforming the mindset to make a new India which makes us future-ready, which makes us ready to engage with the best in the world, which prepares the people of India to live a life of dignity, a life where every citizen of this country will be assured a good decent shelter, electricity, water, a good toilet in his home, basic and quality healthcare and education for every citizen of India, a country free of corruption, a country free of crony capitalism, a country where caste barriers, religious barriers are all done away with and we become a part of the global comity of nations, holding our head high as a nation that truly is empowered to become a superpower.

Thank you.

Next Speech

February 22, 2018 Speaking at UP Investor Summit, in Lucknow

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