Banks' reluctance to lend underscores the need for a more consensual working by the ministries concerned with core sector development.
Whatever policymakers may say about the environment getting better for infrastructure development, the reality on the ground tells a story that is at odds with their roseate views. The best place to accurately gauge the depth of core sector development is in bank lending for projects in key sectors such as power and roads. What banks have revealed is not just a reluctance to lend for such projects but a qualitative assessment of hurdles that core sector projects could run up against. Those hurdles are not related to finances but to the ability of the projects to get off the ground at all; that verdict indicates, more than anything else, the sorry state of policymaking on the most critical issues affecting power.
After an initial eagerness to fund power projects, banks are now not so keen to do so for fear that their money might just be locked up in unviable undertakings. That sense of uncertainty flows from the worries about supply constraints for the projects. Banks figure that most power projects might run aground on the issue of coal from domestic sources. Many projects, including the public sector ones, are lining up coal supplies from Australia and other countries; yet banks appear keen that companies entering the power sector assure them of supplies from domestic sources. One senior official of a public sector bank admitted that sanction of loans to power projects do not reveal the full picture and that disbursements are dependent on a host of factors relating to the ability of the promoters to keep projects on track with sustained coal supplies. This bottom-up picture of the potential for the power sector's expansion should get the policymakers really worried about the coal sector's woes and their effectiveness in solving them so far. It is not enough for New Delhi to assume that a piece of legislation, such as the one on mining, will get the coal sector up and running. In the final analysis, what counts is the ability of various ministers to act consensually on a range of issues, the most important, of course, being the environmental clearances. If the concerned ministry, for instance, does not see eye to eye with the Coal Ministry on the exploitation of coal reserves in environmentally-sensitive areas, there is a dilemma that reflects basic differences in the approach to development itself.
What the banks' reluctance underscores is the need for a more active consensual form of working by the various ministries concerned with core sector development. Some time ago, the Prime Minster had promised the nation his team would work as one; the attitude of banks to coal-based power project funding reveals how important that is for economic growth itself.
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