PARTICIPATION IN INVESTMENTS BY NON-RESIDENT INDIANS AND OTHERS ON INFRASTRUCTURAL DEVELOPMENT PROJECTS

The Central Government of India and the State Government of Kerala finally embarked on a mega-infrastructural investment – Kochi Metro Project - to ease the traffic congestion in the city of Kochi at a cost of 5,000 crore of rupees (approximately 7.5 billion US dollars.)  Amazingly, the Government of Kerala decided to approach the Japanese and French banks to finance this project. Why the governments did not chose to float a public limited company (KOCHI METRO PUBLIC LIMITED) and sell its shares to Non-Resident Indians and the public at large?

“Remittances by NRIs to Kerala cross Rs 1 lakh crores. This includes money from all parts of the world,” Times of India News reported. Reserve Bank of India (RBI) data shows that there was a little over $115 billion in NRI accounts in India, which is about Rs 7 lakh crores. Kerala thus accounts for roughly a sixth of all the money deposited in NRI accounts.

          Experts say that these huge NRI deposits should be used for productive activities like infrastructure developments. Dr Mary George, a former member of the public review expenditure committee, said, “The government should float NRI bonds with attractive interest rates so that money does not flow into the hands of private financial groups, which are making huge profits while infrastructure projects in the state are in limbo due to lack of funds.”'

          At this juncture, I wish to draw your kind attention to another successful infrastructural investment, Cochin International Airport Limited, (CIAL,) at Kochi, which is the best example of participation by NRIs and others. The equity share issue was oversubscribed and nearly 10,000 Non-Resident Indians who invested Rs 10 per share for a stake in India's first Greenfield Airport 10 years back are a happy lot today. At present the share value of CIAL equity share is 350 rupees/share.

Among non-European countries colonized by Europeans during the last five hundred years, those that were initially richer and more advanced tend paradoxically to be poorer today. That’s because, in formerly rich countries with dense native populations, such as Peru, Indonesia, and India, Europeans introduced corrupt “extractive” economic institutions, such as forced labour and confiscation of produce, to drain wealth and labour from the natives. By extractive economic institutions, Mr. Darron Acemoglu, a Turkish American economist, and Mr. James A. Robinson, a British political scientist, the co-authors of a non-fiction book namely “Why Nations Fail: The Origins of Power, Prosperity, and Poverty,” mean practices and policies “designed to extract incomes and wealth from one subset of society [the masses] to benefit a different subset [the governing elite.]”

But in formerly poor countries with sparse native populations, such as Costa Rica and Australia, European settlers had to work themselves and developed institutional incentives rewarding work. When the former colonies achieved independence, they variously inherited either the extractive institutions that coerced the masses to produce wealth for dictators and the elite, or else institutions by which the government shared power and gave people incentives to pursue. The extractive institutions retarded economic development, but incentivizing institutions promoted it.

“Inclusive economic institutions…are those that allow and encourage participation by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish.” For example, in South Korea but not in North Korea people can get a good education, own property, start a business, sell products and services, accumulate and invest capital, spend money in open markets, take out a mortgage to buy a house, and thereby expect that by working harder they may enjoy a good life.

The economic institutions should be able to instill confidence in people and should motivate people to become productive by giving protection of their private property rights, predictable enforcement of their contracts, opportunities to invest and retain control of their money, control of inflation, and open exchange of currency. if there is proper incentives they would definitely invest in such government projects like Kochi Metro Project.

Excerpts from

NEED OF THE HOUR

By

Joseph J. Thayamkeril,

Lawyer, Cochin

josephjthayamkeril@gmail.com memoirs

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