Centre to scale down infra targets

Written by Surabhi Rastogi | Surabhi | New Delhi | Updated: Oct 29 2009, 07:10am hrs
A sharp decline in highway and port sector investments, coupled with the absence of bankable public-private partnership (PPP) projects, has forced the UPA government to scale down its ambitious plan to invest $514 billion to plug the countrys glaring infrastructure deficit in the 11th Five-Year Plan period.

According to a senior government official, the Planning Commissions mid-term appraisal in December will admit to this failure in no uncertain terms and revise the infrastructure investment target for the current Plan to $420-450 billion, which many analysts think would still be a tall order.

This clearly shows that the decline in private corporate investment caused by the global economic crisis was barely offset by an expansionary fiscal policy, which saw more government money chasing infrastructure projects.

The final estimate (of investments) will be in by December, when the Planning Commission will complete mid-term appraisals for the 11th Plan, but its unlikely to be any higher than $450 billion. Performance hasnt been up to the mark, largely because of the road sector lagging behind, said the official on condition of anonymity.

The 11th Plan targets increasing infrastructure investment from 5% of GDP in the base year (2006-07) to 9% by the terminal year (2011-12). In absolute terms, it required investments to be scaled up from $222 billion in the 10 th Plan to $514 billion (Rs 2,056,150 crore) in the 11th Plan.

Achieving even a reduced target of $400-odd billion would be welcome news, but will be a challenging task given the economic slowdown, coupled with the massive delays in awarding PPP projects in the last two years, said PwC ED Amrit Pandurangi.

Financing may have proved to be a cause of concern in the last one year as funds dried up because of the global financial crisis. But a lack of feasible projects on the shelf, together with ministerial inefficiencies, contentious clauses in bidding documents and disputes on land acquisition have made potential investors wary.

For marketmen, who have been betting big on infrastructure sector stocks in recent years as the private sector was expected to pitch in about 30% of investments, this is par for the course. Everyone had already factored in that the target wont be met. Getting $514 billion in investments over a five-year period is a very tall order. Even if the government was serious in its intentions, the policies just arent in place, said UK Sinha, CMD at UTI Asset Management Company, which manages infrastructure funds of over Rs 4,500 crore.

At the same time, the appraisal is revealing some surprising facts: for instance, the laggard power sector has shown the best performance among core infra sectors so far.

Though the Plan targets 78,577 mw of new power projects, it is going to do much better than the 10 th Plan, with around 60,000-65,000 mw coming on stream by March 2012.

The largest deficit is expected in the highways sector, which will not meet targets even if work speeds up to the extent promised by UPA-II surface transport minister Kamal Nath. Just about 4,000 km of national highways have been awarded in the three years of the Plan, against a target of six-laning 6,500 km of the Golden Quadrilateral, 1,000 km of expressways and four-laning 20,000 km of highways.

Efforts to upgrade port infrastructure to keep up with Indias growing global trade have largely remained on paper. Few projects were awarded under UPA-I shipping minister TR Baalu and a recent embargo by the environment ministry has further impeded progress. Capacity upgrades underway at the JNPT and Tuticorin ports have been hit by litigation. The Plan envisages new capacity of 485 million metric tonne (mmt) in major ports and 345 mmt in minor ports.

The railways, despite shying away from aggressively using the PPP route, has seen sufficient investments, be it in gauge conversion or building new lines. It has also managed to secure crucial funding from the Japanese government for the dedicated freight corridor. The only delay is seen in modernising railway stations. Of the 22 stations to be modernised under the 11 th Plan, construction hasnt begun on even one.

The Economic Survey 2008-09 has also highlighted the difficulty in meeting the $514-billion target for investments. Achieving it is a challenging task. In recent years, tangible progress has been made in attracting private investment in infrastructure. However, such public initiatives are constrained by factors like inadequate shelf of bankable projects and lack of long-term finance, it said.