[Answered] Critically examine the “national champions” model for infrastructure development.

According to World Bank report, India has to invest $55 billion p.a. in urban infra to meet needs of growing population. To meet the growing demand the “national champions” model for infrastructure development is launched. In this model the government picks a few large conglomerates to implement its development priorities.

Significance of “national champions” model for infrastructure development:

• Access to some cash-rich projects allows these national champions to borrow from external credit marketsby using these entities as collateral. This lowers the cost of finance of the other projects. It also frees up domestic savings for private investment.
• National champions can contribute to economic growth by generating revenue, creating jobs, and investing in research and development.
• National champions can invest heavily in research and development, leading to technological advancements that can benefit the broader economy.
• To incentivise their investment, infrastructure firms need to be given control over existing projectswith strong cash flows. It helps them to maintain profitability.
• The public association of the champions with the government’s national development policy generates a competitive advantagefor the champions. It helps them in getting domestic and foreign contracts. This too guarantees some stable cash flow.
• The model can help ensure that the country has a strong presence in strategically important industries, such as defense or energy, which can be critical to national security.

Issues:

• There is direct association of these conglomerates with government policies. It creates the potential for markets and regulators to treat them astoo big to fail. This opens the door to market hysteria, and spillovers of sectoral problems into systemic shocks.
• It encourages market concentration. This can often be bad for efficiency and productivityat the economy-wide level.
• These projects take a long time to generate large cash flows. The state needs to provide the champions with access to additional cash flows.The country can turn into industrial oligarchy.
• It can generate the perception of anuneven playing field in terms of market access and selective regulatory forbearance. It can become a significant deterrent for foreign investors.

Infrastructure works as a national aspiration, a barometer of national progress, a mechanism for job creation, a vehicle for crowding in private investment. The newly established Infrastructure Finance Secretariat is a step in the right direction.