Important for
Prelims: Indian Economy
Mains: General Studies III
- India has bet on a development model powered by soft and hard infrastructure that is heavily concentrated in a few hands.
- The “national champions” model: It modified the PPP approach by assigning the bulk of the infrastructure provisioning for roads, ports, airports, energy, and communications to a few chosen industrial houses.
How Will This Model Work ?
- Incentivising national champions to build the projects identified by the government.
- Champions given control over existing projects with strong cash flows which helps them to achieve targeted returns and borrow from external credit markets and lowers the cost of finance, freeing up domestic savings for private investment
- The public association of the champions with the government’s national development policy will generate a competitive advantage in getting domestic and foreign contracts.
Issues with this Model
- The direct association of conglomerates with government policies will make markets and regulators treat them as too big to fail thus, delayed discovery of problems, spillovers effects.
- The longer it takes for projects to generate large cash flows, the greater will be the need for the state to provide access to additional cash flows.
- This risks turning the country into an industrial oligarchy.
- An uneven playing field in terms of market access and regulatory relaxations will be a significant deterrent for foreign investors and bad for efficiency and productivity at the economy-wide level.
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