New Delhi: Prime Minister Narendra Modi is starting to see some success in getting infrastructure projects moving again.

About a third of more than 1,000 projects valued at Rs14 trillion ($210 billion) are delayed as of January, down from 42% a year earlier, according to government data released on Thursday. Cost overruns have come down from 19.8% to 18.4% in that time, it showed.

Modi has made reviving investment a priority since he took office, taking steps to ease bottlenecks and entice foreign companies to set up factories. Yet bad debt, weak global demand and difficulties in pushing through key reforms threaten to hobble the world’s fastest-growing major economy.

“Many of the projects today are stuck because of stressed assets," said Hemant Kanoria, chairman of SREI Infrastructure Finance Ltd. “If someone has gone to the hospital, is taken to the ICU and a quick treatment is not given, the person will die. It’s similar with infrastructure projects."

About 5.1% of Indian bank loans have gone sour as of 30 September, more than three times the bad-debt ratio at Chinese banks, as borrowers find investments stuck due to slowdown. Central bank governor Raghuram Rajan has given lenders until March 2017 to clean up their books as authorities identified Rs8 trillion ($120 billion) of stressed assets in the system.

Delays in land acquisition, environment clearances and contractual issues are some of the biggest roadblocks for India’s infrastructure projects, according to the statistics ministry, which monitors ongoing federal government projects costing Rs1.5 billion or more. That leads to time and cost overruns.

Weak demand

The number of stalled projects fell in the past six months due to faster government clearances in the power and chemical industries, according to a report released by the central bank this week. Proposals to set up new factories remained subdued due to demand uncertainty and muted business confidence, it said.

Markets should scale back expectations of a strong cyclical recovery, Deutsche Bank said in a report on 5 April, citing data from Centre for Monitoring Indian Economy, a local research company. It showed that projects are delayed primarily because investors are wary of deploying capital.

“While earlier investors complained about problems with land acquisition, availability of raw materials, and delays with regulatory clearances, those factors do not rank high any longer," it said. “The drag now principally comes from a lack of conviction about demand, locally or externally."

18 years

About 38% of the delayed projects are in roads and highways, followed by power and coal, according to the statistics ministry.

India’s north-east states marred by insurgency have seen cost escalations as high as 800%. Mizoram, a small state bordering Myanmar, has waited 18 years for a dam that will generate 60 megawatts of electricity and end its power woes. Construction is finally expected to be finished by October after issues over land compensation delayed the project and escalated its cost by almost four times.

Modi defended his record at a Bloomberg event last month, saying that credit growth is picking up and work is starting again on projects that suffered in an economic downturn. Investments worth a total Rs1.3 trillion were completed in the year that ended March 2015, the highest in at least eight years, according to data from the statistics ministry. Projects valued at Rs978 billion were completed in April-December.

Modi has proposed to increase infrastructure spending by 23% to Rs2.2 trillion this year to support growth in Asia’s third-largest economy. With a plan to narrow the fiscal deficit, however, any downturn in the country’s finances would probably lead to cuts in infrastructure outlays before cuts to welfare spending.

India is forecasting growth of as much as 7.75% in the fiscal year which began 1 April. The Asian Development Bank projects 7.4%, down from the previous year’s 7.6% estimated expansion. Bloomberg

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