Indias infrastructure on a slow, yet steady road

Indias infrastructure on a slow, yet steady road
Indias infrastructure on a slow, yet steady road

India needs $1 trillion in investments over the next five years to upgrade its creaking infrastructure to global standards but a combination of unfavourable market conditions, weak commodity prices, inability of Indian banks to lend large sums of money, poor raw material linkages and lack of urgency at the level of state governments have conspired to make the task even more difficult than it otherwise would have been. The “directional framework” released by government think tank Niti Aayog last year focused on five major areas:

  • Railways
  • Roads
  • Ports
  • Inland waterways
  • Housing
Considerable progress has already been made in the roads and railways sectors, the ports sector has been showing signs of gathering steam and the inland waterways sector has just received a legislative boost. But worryingly for the government, data released recently by the Centre for Monitoring Indian Economy shows that more than $160 billion of infrastructure projects are stalled at the end of March 2016 for a variety of reasons, up from $145 billion a year ago. But despite this, corporate and investor sentiment, a very important marker of an impending recovery, is much better than it was two years ago, when the Narendra Modi government assumed office. “... today, the situation is much better. Since this (BJP-led NDA) government came to power in 2014, the process of clearing and approving projects has become much faster,” S.B. Nayar, chairman & managing director, India Infrastructure Finance Company Ltd (IIFCL), told India Inc. “The government has made it amply clear that it means business. There has been a massive improvement in the ease of doing business but there is scope for more. Land acquisition remains an issue. And states sometimes need to coordinate and cooperate better with the central government and the implementing agencies for better overall results,” he added.
Roads sector shows the way
Over the last two years, the Modi government's efforts to revive the economy by kick starting the infrastructure sector yielded mixed results. It has been most successful in the roads and highways sector. Nitin Gadkari, minister of surface transport & shipping, has lived up to his go-getter reputation by reviving the pace of highway building from 2 km per day when he took over as minister two years ago to almost 20 km a day now. He has set a target of building 40 km of roads a day in the current financial year. He has set a target of awarding 25,000 km of highway contracts and building 16,000 km of highways during 2016-17. Each of these two targets is 2.5 times the rate achieved last year. When Gadkari took over, 374 projects worth $45 billion were stuck. “Most of these projects were stuck with the central or the state governments,” Gadkari has said in the past. That is now down to only 19 stalled projects in the roads sector. The National Highway Authority of India has set its sights on building 50,000 km of roads at an investment of $250 billion over the next five to six years. These include the $35-billion Bharat Mala, which will connect Gujarat in the West to Mizoram in the North East with a road along the Himalayan foothills, build roads between the Char Dham (four holy Hindu pilgrimages), connect 100 district headquarters and build roads between India's ports and the hinterland. The road building programme under Atal Bihari Vajpayee's NDA I had led to the boom during 2005-2011. The government is hoping that the current phase of road building will lead to another economic boom that will take India into a higher growth trajectory.
Railways chugging along
Railway minister Suresh Prabhu has unveiled a $133.5-billion programme to develop the railways sector over the next five years. This year, he plans to spend $18 billion on upgrading railway infrastructure. Since taking over, Prabhu has opened up the railways to 100 per cent foreign direct investment under the automatic route. Several high profile projects, including the $90-billion Delhi-Mumbai Industrial Corridor, which envisages building 24 industrial regions, five power projects, two logistics hubs, eight smart cities, two airports and two mass rapid transit systems with Japanese support. Then, there is also the $15-billion high speed Mumbai-Ahmedabad rail link, various ongoing and new metro rail projects in Delhi, Mumbai, Kolkata, Bengaluru, Chennai, Jaiput, Hyderagad and Kochi, dedicated freight routes connecting important industrial centres with other such centres as well as ports, railway electrification and signalling systems and plans to upgrade and redevelop 400 railway stations across India. Already, companies such as Alstom, GE, Bombardier, Hitachi and Google have won multi-billion contracts for various ongoing projects. But much bigger opportunities lie ahead for these companies as well their rivals and/or collaborators in India, South Korea, Europe, the US and China.
A garland of ports
The governments's ambitious $180 billion Sagarmala project to transform and upgrade existing ports and build new ones along India's vast eastern and western coasts as well as build new industrial clusters around these ports on the lines of the Chinese development model is yet another flagship infrastructure project that could change the face of the Indian economy. At present, long distances between ports and industrial clusters and the poor connectivity between them adds to costs of Indian industry. By building high speed road and rail networks connecting these centres and also by building large industrial clusters close to ports, the government will facilitate lower cost manufacturing in India. The port infrastructure across the east and west coast is expected to cost about $60 billion while the industrial parks, logistics hubs and connectivity infrastructure will cost another $120 billion.
Rivers as the new roads
Parliament has just passed a bill to enable the government to convert India's rivers into a transport backbone criss-crossing the country. This will decongest India's overstretched railway and road network, help save fuel, cut costs and generate massive employment. In addition, inland water transport is considered more environment-friendly than road and rail transport. Inland water transport is considered a more cost-effective form of transport than either roads or rail for bulk cargo like coal and cement as well as for cargo that is of extra-large dimensions. The government plans to spend $75 billion over the next 5-6 years to develop 101 rivers in 24 states into inland waterways. Besides commercial transportation, this initiative will also provide a fillip to passenger transport and tourism. “Make in India will not succeed unless we can reduce logistics costs and one way of doing that is to have a viable inland waterway system as it is the cheapest form of transport,” said Gadkari. A RITES study says the cost of transporting cargo on rivers is less than 1.5 cents per tonne kilometre against 2.1 cents for rail transport and 3.9 cents for carriage on roads. India has 14,500 km of navigable rivers but this potential is largely unutilised as only 1 per cent of India's total cargo is transported on rivers.
Housing for all
Prime Minister Narendra Modi has unveiled an ambitious plan to provide housing for every Indian by 2022. The $30-billion project envisages rehabilitating slum dwellers, building 10 million low cost housing units for the poor and providing subsidies on the interest on loans taken by the home buyers. This is in addition to two other urban renewal schemes - the $15-billion Smart Cities initiative and the $8-billion Atal Mission for Rejuvenation and Urban Transformation (AMRUT). The construction sector is India's largest employment generator after agriculture. It also generates 12 jobs per $16,000 of investment, making it the largest generator of jobs per unit of money. These three schemes, if properly implemented, could transform the urban sector in India, create millions of new jobs and kick start an economic recovery. The power sector, too, has turned around and the residual problems in the transmission sector are being sorted out under the UDAY scheme.
Financing growth
India's banking sector is reeling under the weight of non-performing assets and so, is not in a position to lend large amounts to infrastructure companies. According to reports, total NPAs and stressed assets could be as high as 10 per cent of all outstanding loans. Many large infrastructure companies are also sitting on highly leveraged balance sheets and so, are not in a position to launch large projects. But Reserve Bank of India Governor Raghuram Rajan's diktat to banks to clean up their books by March 2017 could bring them back to health in another four quarters even if it leads to much blood letting in the short term. Then, the UDAY scheme to reform power transmission by nursing debt-leaden state electricity boards back to health will also help reduce NPAs by up to 1 per cent. Meanwhile, India continues to receive record foreign direct investment. In 2015, it received $63 billion in investments from foreign companies, overtaking China to emerge as the largest recipient of FDI in the world. Then, the RBI has eased norms for Indian companies wanting to raise funds abroad. In this context, London has emerged as the lead centre for Indian companies raising rupee-denominated bonds, which transfer the foreign exchange risk from the borrower to the lender.
Land still a roadblock
Large infrastructure projects need large tracts of land. The inability of the government to steer the land acquisition bill through Parliament - in the face of stiff opposition from the Congress and some other political parties in the Rajya Sabha, where the ruling National Democratic Alliance lacks a majority - is holding up several important projects. In order to find a way around this problem, the central government has asked the states to amend the laws locally to make it easier to acquire land for development projects. But progress has been slow and this remains a drag on India's growth ambitions. Despite this, the groundwork has been done for an all-round uptick in the infrastructure sector. Analysts said it is just a matter of time before the trickle of investments turns into a torrent. “It is true that real investments are still not coming in, but that will happen over time,” says IIFCL's Nayar.
Arnab Mitra is Consulting editor, India Inc. He writes on business and politics.

Related Stories

No stories found.

Podcast

No stories found.

Defence bulletin

No stories found.

The power of the quad

No stories found.

Videos

No stories found.

Women Leaders

No stories found.
India Global Business
www.indiaglobalbusiness.com