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Wednesday, 20 February 2013 00:00
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Possible compensation for govt delays a good idea

Given that some of the top bidders—the GMR Group, the GVK Group—walked out of NHAI projects because of huge delays in getting clearances, the possible solution being discussed is a good one and needs to be taken further, and quickly. According to newspaper reports, at the PMO’s meeting on delays in highway projects, one of the ideas considered was for the government to compensate developers for delays from the government’s side. The idea, it has to be pointed out, is still at a formative stage and is a long way from becoming, if ever, policy. But it has powerful implications.


The finance ministry, it is obvious, will baulk at the idea considering its costs—and the demand to have it applied to other sectors as well—but this is missing the wood for the trees. If the government is to compensate firms for the losses its actions cause, this can only improve the investment climate and bring in more bidders for PPP projects. Indeed, if there’s a lesson here, it’s of how, with appropriate guarantees, the government can improve the investment climate. Take land records where, given the government doesn’t guarantee the accuracy of land records, people spend large sums doing due diligence on property sales. If, on the other hand, the government guaranteed to make good the losses investors suffered due to inaccurate records—the land X bought turns out to be Z’s though the records show it belongs to Y—the investment climate would improve, giving better returns to government. Inflation-indexed bonds, to talk of the other idea in vogue nowadays, would cost the government more, but would be worth it since it would help channelise household savings away from gold into financial instruments. Smart government, as opposed to just smaller government, needs to be the mantra of the day.


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