Our industries suffer from chronic power cuts. Exports are delayed because of poor roads and congested ports. Flights often circle in the air as there is a big queue of aircraft waiting to land. Our office goers spend forever in the traffic. Villagers get power for a mere 6-8 hours a day only.
Economists estimate that 2% is lost in economic growth as an outcome of poor infrastructure leading to serious supply constraints. Accelerated infrastructure investments will not only de-bottleneck the system but will also create its own demand. There can?t be a better example to draw upon than China.
No other country, at no other time in the history of the world, has invested capital on a scale that China has done in recent times. It has built infrastructure at a pace that can only be described as spectacular. And as a result thereof, since the 1980s, China has not only awed and amazed the world with double-digit growth rates, but has also continuously defied the boom-bust theory of economic cycles.
Realising the importance of nation building, our planners and policymakers are targeting a whopping $1 trillion of infrastructure investments during the XII Plan period.
With the combined Central and state deficit at over 11% of GDP and national debt at close to 90% of GDP, government finances are severely constrained. Realising its constraints, the government has actively encouraged private participation in infrastructure development since the early 2000s.
In recent times, driven by government initiatives and private sector?s enthusiasm, investment in infrastructure has made significant strides from a mere 5% of GDP a decade ago to a projected 10% level during the XII Plan period. During the same period, the private component in total infrastructure spend has moved up from the 25% to 50% estimated in the XII Plan.
So far, so good. However, there are serious worrying signs that have emerged lately from a host of sources. While, on the one hand, there have been serious impediments to timely project execution due to land acquisition issues and also delays in getting various government clearances, on the other, unanticipated risks to the business/PPP model have often cropped up due to various uncertainties. Investments in large power plants are at risk either because of lack of fuel linkages or for reasons like captive coal mines that were allocated but yet to get environment clearances.
As a result, most infrastructure companies have indeed suffered very badly. Their suffering is further accentuated not only because banks and financial institutions with exposure to this sector are a worried lot and are therefore hesitant to extend any further credit, but also because the market capitalisation of these companies have come down so drastically that they have little ability to raise any funding.
Private sector enthusiasm has been seriously dented and is evidenced in not only the poor response to the recent NHAI (road) bids, but also can be seen in the fact that companies are preferring to walk off from awarded projects even if it means encashment of their bank guarantees.
There is a need to find and implement solutions with the utmost urgency: (1) A land acquisition Bill that balances varied interests is vital; (2) Forest and environmental clearances need to be expedited. The National Investment Board as single-window concept is a welcome step in this direction; (3) A well thought-out PPP model to remove uncertainties; (4) Independent quality regulatory bodies need to be set up; (5) A policy for the allocation of natural resources needs to be worked out; (6) Domestic coal production needs to be increased urgently; and (7) A solution to long-term financing needs to be found.
Clearly, India?s growth story needs to be driven by infrastructure investments and the planners and policymakers need to align themselves to this. As serious bottlenecks have emerged, the need of the hour is to identify and implement solution with utmost urgency.
It is a welcome sign that the government has recently shown some resolve in this direction.
The author is CEO of Reliance Infrastructure Ltd. He concurrently holds the post of Chairman of BSES Rajdhani & BSES Yamuna Pvt. Ltd
