An unexpected global blow

Written by Sanjay Jog | Updated: Mar 11 2009, 03:51am hrs
The global financial crisis and the economic slowdown at home have hampered infrastructure development in India. The Centre has projected an ambitious $520-billion investment in the infrastructure sector in the 11th Planup from $220 billion in the 10th Plan. Of the $520 billion investment, one-third each has to come from the Centre, states and the private sector. But the global meltdown and expectations of a prolonged recession in major economies have slowed infrastructure financing.

Ironically, though governments, private sector, banking and financial institutions are unanimous that spending on infrastructure development will boost economic growth, there is limited action on the ground.

According to analysts, infrastructure investments will create demand for a whole lot of equipment and services like power equipment, construction equipment, material handling equipment, electronic & IT systems, environment technologies ,transport equipment, EPC contracts, financial services, real estate development, education & training, design & planning, infrastructure consultancies, and advisory & professional services, besides providing income opportunities for investors, contractors, O&M contractors, developers and foreign players.

But the difficulties in raising financesboth domestically & externally and problemsand limited availability of project equipment and materials come as major hurdles in infrastructure development. Compounding difficulties are the inordinate delays in project clearances, hurdles in making investor-friendly agreements, red-tapism and political opposition to land acquisition.

The latest RBI study on infrastructure financing is self-explanatory. RBI has made a strong pitch for easing infrastructure funding norms and suggested that funds need to be created through disinvestments, especially in infrastructure entities, to promote private participation in infrastructure. There is also an urgent need to cut budgetary and management obligation and promote competition, it said.

Major investments planned in the infrastructure sector includes:

Power: Additional power generation capacity of about 90,000 mw (78,700 mw-plus captive generation of 12,000 mw) to take electricity to all un-electrified hamlets and provide access to all rural households through Rajiv Gandhi Grameen VidyutikaranYojna;

National highways: Six-laning 6,500 km of the Golden Quadrilateral and selected national highways; four-laning 6,736 km of North-South and East-West corridors; four-laning 12,109 km of national highways, widening 20,000 km of national highways to two lanes; developing 1,000 km of expressways; constructing 8,737 km of roads, including 3,846 km of national highways in the Northeast;

Rural roads: Constructing 1,65,244 km of new rural roads; and renewing and upgrading 1,92,464 km, covering 78,304 rural habitations.

Railways: Constructing dedicated freight corridors between Mumbai-Delhi and Ludhiana-Kolkatta; 10,300 km of new railway lines; gauge conversion of over 10,000 km and doubling, modernisation and redevelopment of 21 railway stations; introduction of private entities in container trains for rapid addition to rolling stock and capacity; and introduction of Metro rails and world-class stations;

Ports: Capacity addition of 485 MT in major ports, 345 MT in minor ports; construction of jetties and berths; and port connectivity, deepening of channels;

Airports: Modernisation and redevelopment of four metro and 35 non-metro airports; construction of seven greenfield airports, upgrading CNS/ATM facilities; and setting up training facilities and MRO.

UK investment banker Noble Research India says the infrastructure sector would be in the doldrums over the next six months despite the back-to-back stimulus packages from the government. The governments stimulus packages, for jump-starting private investment in the infrastructure sector, would be unsuccessful in injecting life into the sector due to the private sectors reduced appetite for risk. Moreover, the lack of availability of affordable international funds would make the external commercial borrowings relaxations ineffective.

Kirit Parikh, member, Planning Commission, admits that the current slowdown has impacted the projected investment from the private sector and the gap needs to be filled up by the state and central governments. Parikh is hopeful that a capacity addition of 70,000 mw, less than the target of 78,700 mw, will be achieved in the Plan period, as orders for power plants and equipment have already been placed by the developers. However, he notes slackness in the roads, ports and airports projects. Parikh says public-private participation is the best way to pursue ambitious projects and overcoming structural limitations.

An Ernst & Young report, titled Infra Insight, notes that a large number of bids under the privatisation programme initiated by the National Highways Authority of India have been delayed. Over the last year, there has been much debate around the qualification process adopted by NHAI. Although this issue has been addressed, these bids are now seeing a poor response from bidders since the auctions are taking place in a credit-constrained market.

Parvez Umrigar, managing director, Gammon Infrastructure Projects, has, in a seminar, asserted that most road and highway projects were held up for want of a consensus on the model concessions agreement. An analyst from a Mumbai-based broking firm says, The introduction of the new model concession agreement containing provisions, like technical qualification and cap on the number of bidders for financial bidding, created a lull in the bidding process.

PwC believes the basic issue in delays in road projects is land acquisition, which is a state responsibility. There should be a proper inter-governance collaboration to deal with such situations. There should be a common land acquisition policy. There should also be a uniform interest rate policy or a subsidised interest rate policy.

The opportunities in the sector are immense and the challenges are not insurmountable, despite the meltdown. A coordinated action is the need of the hour.