Slow progress to overhaul India’s crumbling infrastructure
has long been seen a drag on growth, as Asia’s third-largest economy looks to
match the double digit expansion of neighboring China.
Gajendra Haldea, a Planning Commission adviser, told Reuters
the government was on track to meet its target to spend $500 billion on
infrastructure between 2007 and 2012, with more than a third funded by private
investors.
But progress across sectors has been uneven.
Investment in the telecoms sector is set to jump 34 percent
on the back of a $22 billion splurge on a recent 3G radio spectrum auction, he
said. But the roads sector is likely to miss its target by 11 percent, railways
by 23 percent and ports by 53 percent.
“The 500 billion story is very much intact in terms of total
numbers,” Haldea said in an interview. “There have been high achievements in
some cases and shortfalls in others.” Prime Minister Manmohan Singh’s
government expects the Indian economy to grow by around 8.5 percent this fiscal
year as, like China, it shakes off the effects of the global financial crisis.
But experts say poor infrastructure shaves off up to 2
percentage points from India’s annual growth.
A high profile test case will be October’s Commonwealth Games
in New Delhi — intended to showcase India’s economic clout — but which has been
blighted by construction delays in its venues.
It may also take more than two years for the government to
meet its 20 km per day road construction target, Haldea said. The government
needed to reform the state-run highway authority, the National Highways
Authority of India (NHAI), to speed up progress, he added.
“Much depends on how the entire sector especially the NHAI
is run,” he said. “It needs some restructuring. It needs clear, strong
leadership, needs efficient and competent processes.” The authority had not
awarded enough road contracts in the past three years, Haldea said.
The government announced a series of measures to boost
funding for India’s infrastructure, including a $11 billion debt fund, in line
with its target to double investment to $1 trillion between 2012 and 2017,
roughly the size of its current GDP.
It will also issue tax-free infrastructure bonds with a
minimum tenure of 10 years to make investment more attractive to banks that
have so far struggled to finance long-term projects with short-term funds.
Haldea said such bonds could be issued to AAA-rated private
firms in the future.
But sectors such as railways and ports need to modernize
fast to attract private investment, he added.
“The truth of the matter is that the railways continue to
run as an institution in a manner that is truly outdated. It is very, very old
structure,” he said.
“The railways have not restructured themselves. That is one
of the biggest impediments in change, and in accelerating their projects. Also
because they are a monopoly, the government monopoly, you know it has been
difficult for them to attract private investment.” While the construction
opportunities in India are huge and capital is plentiful, analysts rue there
aren’t enough large-scale, quality projects worth financing.
“As long as infrastructure bottlenecks are there, it will
erode our competitiveness and make it difficult to achieve double-digit growth.
Sustaining high growth with lower inflation rate of 5-6 percent will remain a
dream,” said Rupa Rege Nitsure, Chief Economist at Bank of Baroda.
“Manufacturing sector is already suffering capacity
constraints due to shortages in power and transport sectors.”
