In World Economy News 26/05/2015
For a government that sees infrastructure building as the central plank of its development agenda, reviving private investments and restarting stalled projects remain critical challenges as it completes a year in office.
The National Democratic Alliance (NDA) government’s 2015-16 budget increased infrastructure spending by Rs.70,000 crore. Its priority: roads and railways.
On 28 February, Union railway minister Suresh Prabhu laid out a five-year, Rs.8.5 trillion investment plan for the national transporter. Out of this, Rs.1.5 trillion will come from the state-owned Life Insurance Corp. of India, Rs.2.5 trillion from budget allocations and half a trillion from market borrowings. The balance Rs.4 trillion is expected from the National Investment and Infrastructure Fund (NIIF) announced in the Union budget, surplus funds of public sector units and private and foreign investments in rail infrastructure.
The government has allowed 100% foreign direct investment (FDI) in rail infrastructure and is talking to multilateral institutions to raise money via the NIIF. It is also hoping to put in place policies to revive private investment.
Despite the scale of the ambition, however, these remain works in progress. Until there is a greater clarity on funding, plans for a modern railway network will remain on the drawing board.
In an interim report, a government panel led by economist Bibek Debroy suggested separating the roles of operation, regulation and policymaking, establishing an independent regulator for economic regulation and social cost accounting. The railways’ longer-term vitality and its ability to attract significant investment will hinge on the government’s ability to implement these measures.
For the road sector, the government has promised a model that reduces developers’ risk, easier exits for developers in older projects and financial help for projects stuck at an advanced age. However, these measures, combined with those initiated by the United Progressive Alliance government such as premium rescheduling, delinking environment and forest clearances and notifying road sector loans as secured loans, have failed to revive investments that dried up in the last two years. Making matters worse, banks tied down by bad loans to infrastructure companies are in no position to support a recovery, whenever it comes.
With the public-private partnership (PPP) model broken and private investment frozen, the government has returned to the old model of awarding contracts; however, this is not a sustainable model. The government, which aims to build 30km of roads per day in 2015-16, was able to build only 12km a day in the previous fiscal. It is estimated that the government requires nearly Rs.2 trillion to fund 20,000km of road construction under the National Highways Development Project over the next four-five years.
New ports and inland waterways are also part of the overall infrastructure game plan.
The government released norms for a scheme to encourage shifting of cargo carried by rail and road to coastal shipping and inland waterways and approved a policy to develop 101 rivers as inland waterways. However, there has been little progress on the shipbuilding policy, shipbuilding fund or the Sagarmala project for port development.
“In terms of the direction-setting parameter, the NDA government has articulated and implemented two broad thrust areas. One is massive engagement with the international community and the second is clear articulation of policy to revive growth by massive public expenditure on infrastructure,” said Vinayak Chatterjee, chairman of infrastructure technical services firm Feedback Infra Pvt. Ltd. “From September, there has been tremendous backroom activity in creating and drafting projects and programmes to enable public expenditure to happen as per the strategy intended. The industry, as a consequence of this, could expect an uptake in order books and liquidity around the third quarter of the fiscal.
“Key challenges remain in terms of reviving the much needed PPP cycle as well as designing innovative implementation vehicles to get many of the visionary projects like bullet trains, inland waterways development, reforms of discoms and so on. The existing bureaucratic structures are unlikely to deliver immediate results in these areas,” he said.
