Speedier clearances no magic wand for India's infrastructure logjam

Sun Sep 1, 2013 5:20pm EDT
 
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By Matthias Williams and Manoj Kumar

NEW DELHI (Reuters) - Scrambling for remedies as investors' faith in India sagged, the government said last week it fast-tracked approval for a slew of infrastructure projects worth $28 billion: but the stroke of a pen in New Delhi will not be enough.

The government hopes that speeding up the launch of hundreds of new power plants, highways and oil exploration blocks will breathe new life into an economy that has fallen off its perch as an emerging market high-flier.

Growth in the latest quarter was the slowest since during the global financial crisis, and the rupee has tumbled ever deeper against the U.S. dollar. Failing to get the projects off the ground would be another blow.

However, there is no evidence to suggest that these projects will somehow sidestep the obstacles that have hobbled construction for years - from red tape and land acquisition battles to banks' unwillingness to lend to a risk-prone sector.

Only a quarter of Indian infrastructure projects are completed on time, according to a 2012 report by Ernst & Young consultants.

Financing will be one of the biggest challenges right now. The infrastructure sector is one of the biggest contributors to banks' growing bad loans, with outstanding debt of about $120 billion, and tight liquidity conditions mean debt-laden companies will find it tough to raise fresh funds.

"These new measures are much too wonderful to be true," said Eric Mookherjee, a Paris-based fund manager at Shanti India, which manages Indian stocks worth more than $300 million, including IRB Infrastructure Developers Ltd (IRBI.NS: Quote).

"Expediting approvals for the projects that were stalled for years is not going to start the machines from tomorrow morning," he said. "The issue with infrastructure in India is financing, and if liquidity is going to be sucked out of the market to support the rupee it will be very hard for the banks to fund these projects."   Continued...

 
Workers unload iron rods from a truck at the construction site of an educational institute on the outskirts of western Indian city of Ahmedabad August 30, 2013. REUTERS/Amit Dave