‘Project delays, equity constraint impacting infra’

Easing execution, minimising losses, attracting private investors can enable growth, says an expert

By   |  Published: 30th Dec 2019  12:08 amUpdated: 29th Dec 2019  9:58 pm
VIABLE SOLUTION: Issuing all clearances before a project is offered for bidding can avoid delays and time/cost overruns.

Hyderabad: As many as 377 infrastructure projects are showing a cost overrun of Rs 3.94 lakh crore, as per latest figures of Ministry of Statistics, which is a burden on the Indian economy. Time over runs also remain a major concern, with project delays stretching by additional 39 months, which is increasing the capital cost of the projects by 40 per cent, notes an expert.

Multiple factors such as delay in environmental clearances and land acquisition, poor project planning and execution are leading to this situation. The solution is having all clearances before the project reaches bidding stage.

Anil K Sood, co-founder of the Hyderabad-based Institute for Advanced Studies in Complex Choices (IASCC), told Telangana Today, “Since the project costs are going up, either consumer pricing is going up or the government is trying to subsidise the additional cost, which is again impacting the overall economy, creating a vicious cycle. Delays in project execution are even reaching courts, which can be avoided by prior clearances.”

As States are involved in the land acquisition for project execution, Centre should look at both incentives for enabling faster acquisition and disincentives for causing delays. Equity contribution will also help as a financial incentive for States, he observed.

Global trend

Infrastructure globally has slowed down, particularly in the emerging economies. Slowdown in demand and lack of capital had impacted infrastructure projects. In the pre-Brexit stage, the UK was the only country that has developed a standard project implementation framework for infrastructure, which is fetching some positive outcomes.

China though has slowed down in infrastructure, but is not constrained much. The nation was earlier building projects 4-5 years ahead of demand, but now it is building 2-3 years ahead of demand. Productivity levels of the country’s investments had been matching global benchmarks.

India perennially had been short of equity capital in the last 10 years. Since equity availability is low, and when the infrastructure projects are delayed, there is a clear need for the nation to have more equity capital for infrastructure than manufacturing. And the nation has made banks fund the infrastructure projects, and delayed projects are impacting the balance sheets of banks. India is not debt constraint, but equity constraint. Banks are forced to take equity risk when they can’t.

Tackling bad loans

Sood observed, “Power and mining sector bad loans need to be resolved quickly. Thermal power sector plant load factor has fallen below 50 per cent. Another issue is that of power distributing companies owing Rs 80,000 crore to the power generation companies. Energy cost per unit in India is still high as the capacity utilisation is low, financing cost of generation companies is high, and transmission and distribution (T&D) losses stand at about 21 per cent.”

“There is a misallocation in power sector. Instead of investing in transmission and distribution, we have been in investing in generation capacity. Renewable capacity is also being added significantly, while money should have gone into minimising T&D losses,” he added.

Transport projects

Centre should start looking at securitising the investments National Highways Authority of India has made in road projects. Private sector is not interested in new projects as there is no enough equity available. New players need to be encouraged to foray into road sector by creating a suitable investment climate.

“On the railways front, Centre has looked at privatising 150 routes. Productivity gains have to be tangible and there should be clarity on who will share how much of these gains,” notes Sood.

Economic development at and around railway land can be explored by integrating the development plan of the city. Railways can also explore creating malls and retail stores at the stations that can cater to the footfalls that the stations witness, as a part of the station development.

Complete privatisation

“Globally, if we see in the US, only sector that privatisation has happened is the power sector. Private sector participation in several infrastructure sectors is still very low. The role of government in infrastructure arises because of the fact that these are long-term investments and equity funding is needed because of the construction and completion risks. Complete privatisation of infrastructure sector is not feasible and more so in the urban transportation. One area where projects became viable for private sector participation has been the airport development and operation in India,” he added.


Now you can get handpicked stories from Telangana Today on WhatsApp / Telegram everyday. Click these links to subscribe and save this number 9182563636 on your contacts.