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2014 Media Kit

India may miss key infrastructure targets

By: | at 08:00 PM | Intermodal  

Bureaucratic hurdles may cause India’s government to miss 2012 investment targets in key sectors such as roads, railways and ports, potentially crimping economic growth, an adviser to the planning commission said.

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 neighbouring 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.”

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 kilometres 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.

But sectors such as railways and ports need to modernise 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.” (Reuters)