India’s industries suffer from chronic power cuts; exports are delayed because of poor roads and congested ports. Office-goers spend hours stuck in traffic; villagers get electricity for only 6 to 8 hours a day. Economists estimate that 2 per cent is lost in economic growth owing to poor infrastructure.
Accelerated infrastructure investments will not only de-bottleneck the system, it will also create its own demand. There can’t be a better example than China, which has built infrastructure at a spectacular pace. As a result—since the Eighties—it has seen double digit growth and defied the boom bust theory of economic cycles.
Realising the importance of nation building, our planners and policy makers are now targeting $1 trillion of infrastructure investments in the Twelfth Plan. With the combined central and state deficit standing at over 11 per cent of GDP and national debt close to 90 per cent of GDP, government finances are severely constrained. Realising this, the government has been actively encouraging private participation in infrastructure development since the early 2000s. Investment in infrastructure has thus made significant strides, from 5 per cent of GDP a decade ago to a projected 10 per cent during the Twelfth Plan, with the private component going from 25 per cent to the 50 per cent range (12th Plan estimates).
So far, so good. However, some worrying trends have emerged lately. These include projects getting blocked due to land acquisition issues or delays in getting government clearances. Also, power investments are at risk because of lack of fuel linkages or coal mines being denied environment clearances. Issues such as these are causing infrastructure companies to suffer. Their suffering is further exacerbated by the fact that one, bankers and financial institutions are reluctant to extend them any further credit; and two, their market capitalisation has come down so drastically that they have little ability to raise any funding. All in all, private sector enthusiasm has been seriously dented, as evidenced by the poor response to the recent NHAI (road) bids and the fact that companies are preferring to walk away from awarded projects even if it means encashing their bank guarantees.
So what is the solution? Here are some ideas: (1) A land acquisition bill that balances varied interests; (2) Expediting of forest and environment clearances. A single-window National Investment Board is a welcome step in this direction; (3) Well thought-out PPP model to remove uncertainties; (4) An independent and quality regulatory body; (5) Clear policy for allocating natural resources; (6) Urgent need to increase domestic coal production; and (7) A solution to long term financing needs.
In conclusion, India’s growth story needs to be driven by infrastructure investments and the planners and policy makers need to urgently align themselves to this.
(The author is CEO, Reliance Infrastructure Ltd)