Analysis

The mess of Indian Infrastructure and its finance

For India to grow, her infrastructure must grow. With over two decades of growth talks one must expect infrastructure projects to be the sunshine sector but that’s not the case.

Almost all infra projects are politically contested – environmental clearances get delayed, land acquisition is enormously difficult, time and cost overruns are part of project life cycles.

“As on November 1, 2017, a total of 1,283 projects (worth Rs 150 crore and above) are being monitored by this ministry. Of these, 302 are running behind their schedule. The cost over-run of these 302 delay projects is Rs 1,45,679.07 crore,” Minister of State for Statistics and Programme Implementation Vijay Goel said in a written reply to the Lok Sabha.

The figure of 1,45,679.07 Crore rupees (almost 20 Billion USD) was never a part of plan and now this figure has come back to haunt all of us in form NPAs and defaults. We believe that this figure is much larger as quite a few delays have been covered up with revised timelines hence technically not delayed at all.

The fact that Infrastructure Leasing & Financial Services Limited defaulted should not have come as surprise. The company was financing long term projects with short term loans. Even one of the projects getting delayed meant cost overruns that could not have been accounted for.

As per SBI capital market research in FY18-22 a total investment of 0.77 Trillion USD will be required. However, banks (and after IL&FS, NBFCs too) simply have no handle to estimate the risks involved in financing such projects.

There is no doubt that for India to grow the infrastructure has to grow. Bharatmala is required, so are the railway upgrades and better ports. Power sector is of utmost importance – which by the way remains deeply in red.

The problem is at a policy and legal framework. While right to property has been removed as a fundamental right 1978, still state act clueless when it comes to land acquisition. Projects are finalised with environmental clearances as the last hurdle, and most of all petty politics stares every project in its face. An upgraded framework with all stake holders including environmentalists is the need of the hour so is an all-party agreement to take projects forward.  Failure of banks and NBFCs like IL&FS are a symptom, disease is far more systematic

 

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