Is India's $1 trillion infrastructure target overly optimistic?

MUMBAI: The twelfth five-plan target of $1 trillion investment in infrastructure seems overly optimistic considering the weak financials of major infrastructure companies. According to latest report by ICRA, at least 50% of the $1 trillion will have to come from non- budgetary allocation. This includes funds through equity from private companies and debt from financial institutions.


During the first three years of the Eleventh Plan, non-budgetary funds accounted for 55% of the total infrastructure spending. During the start of the eleventh five-year, attractive valuations made capital raising easier for the companies. However, at present, companies’ profitability is hit due to aggressive bidding and weak macro-economic environment. In addition, a weak investor sentiment has made fundraising difficult. As a result, further investment in infrastructure projects is likely to see lower participation.

Going forward, a lot would depend on reforms relating to power distribution, fuel linkage, land acquisition and regulatory clearance to see a significant participation in the infrastructure sector.

Last week, Finance minister P Chidambaram said steps will be taken to speed up implementation of infrastructure projects, in a bid to ease India Inc's worries over stalled projects.

"The government is doing its best to sort our project implementation issues," Chidambaram told a gathering of citybased industrialists and chiefs of large commercial banks.

India's poor infrastructure, often cited by experts as hurdle to robust economic growth, is mostly blamed on delays in approvals , which often force companies to put expansion projects on hold. The finance ministry has identified 215 infrastructure projects , worth about 7 lakh crore, that have been blighted by regulatory hurdles and inadequate fuel supply.

Chidambaram pointed out that close to 100 infra projects, across sectors like power, coal, iron, steel and road transport, have loan approval but are yet to start. According to a finance ministry study, about Rs 54,000 crore in bank loans are at stake until these projects are fully commissioned.