Indian infrastructure growth at its pinnacle
Indian infrastructure growth has reached massive heights.
All the same, constraints persist threatening to slow down growth. Ankineedu
Maganti, Director, Soma Enterprise Ltd, examines issues that are impeding
the momentum and offers suggestions that could expedite the process.
India has witnessed an absolute metamorphosis over the last
decade. Sprawling cities, flourishing businesses, higher standard of living are
all indicators of unprecedented growth, globalisation, urbanisation, expansion
and diversification. Infrastructure modernisation and development is said to be
the key driver of all the growth and economic activity. The Indian
infrastructure sector is at an inflection point and there are immense
opportunities for the private sector. Although the sector is booming, there are
hindrances in the smooth development of world-class infrastructure.
The highways sector received much required fillip when the government announced
National Highway Development Programme and its first two phases-Golden
Quadrilateral and North South-East West Corridor. These projects were funded by
National Highways Authority of India. For the subsequent phases, i.e. III, IV &
V, the government decided to involve the private sector by promulgating the BOT
model. Under this model risks would be allocated to those parties that were best
equipped to manage them. The private sector had to its credit the capability of
delivering quality services to the public. Here, the private sector stood to
benefit, as the PPP model would generate reasonable long-term revenue and
profits for them. This model also allowed the government to allocate and use its
funds in other focus areas of development.
One of the key factors acting as a deterrent to growth is paucity of funds. This
holds true especially in the case of large scale, complex projects, as in case
of hydro power projects, which have long gestation periods. The Government needs
to consider introducing mechanisms/ instruments that allow efficient long-term
funding of projects. In addition, limits on external commercial borrowings for
such infrastructure projects should be removed.
With the rapid growth in the industry, there is still a mismatch of supply and
demand in terms of construction equipment. Delays in deliveries of equipment
result in delayed mobilisation and completion of projects. Further, prices of
construction equipment have steadily increased over the past few years, partly
due to the high demand, and partly due to increase in input costs. A large
portion of construction machinery deployed in projects is imported. The import
duties levied on construction equipment are increasing the cost of construction.
Exemptions are available in some projects funded by external agencies such as
the Asian Development Bank and World Bank. However, this exemption is not
available in other projects including PPP projects. To sustain
the growth in the construction sector, import duty on construction equipment and
material such as bitumen, steel and cement should be removed especially in PPP
One of the pressing needs is adequate compensation for increased prices of
certain materials such as steel, cement, bitumen and diesel. Most construction
contracts rely on indices for price escalation in these materials, and the
indices are not fully reflective of the price rise, especially in cases of
extraordinary increases in short periods of time. Further, in BOT projects it is
left to the entrepreneur to estimate the price escalation during the
implementation period of the project. However, it is not possible to factor in
such extraordinary increase in prices at the time of tendering for the projects.
There should be a mechanism to ensure planned and expeditious implementation of
infrastructure projects. Currently, there is a large gap between the time of
announcement of projects and their award. Also, there are periods of furious
activity in awarding a large number of projects followed by a long period
without projects being awarded. It is essential to phase the projects in a
continuous manner in order to optimise the scale up of resources in the
infrastructure sector in India.
As this is just the beginning of the infrastructure boom in the country, the
industry needs to prepare for execution needs. With the ramp up in manpower and
other resources, Indian companies will be in a position to cash in on
opportunities both domestically and internationally. Unless adequately
addressed, shortage of skilled manpower will be the single most important
hindrance to aggressive infrastructure development.
Newer trends in road projects such as six-eight laning of highways, large-scale
and more complex projects in power sector, metro rails, monorails and high
capacity bus systems mark the eagerness of our country to take its
infrastructure to another level. A concerted effort is required from the
government to make world-class infrastructure a reality in India. Alternative
funding for projects, favorable policies and increased incentives for PPP
projects would encourage the private sector to work in tandem with the
[May 19-25, 2008]