The government has announced a series of measures to prop-up India’s languishing infrastructure sector which has also cheered the markets. We hate to be nitpickers, but a closer look at the project backlog and tortoise pace of implementation indicate that while these measures remain impressive on paper, things might not change much on the ground.
Under the new infrastructure plan, the government plans to step up awards of road construction projects by 19% year-on-year to 9,500 km in FY13. While the National Highway Authority had awarded road projects worth nearly 7000 km in FY12, meeting last year’s target; a closer look at the actual road completion over last two years indicates that awarding road projects has not translated into smooth roadways that connect hinterlands to the cities.
Road completion in the past two years has been less than 2000 km per year. “At this rate, it would take a little more than 16 years (2028) to complete the current quota of roads, even if the NHAI does not revise its current total target of 48254km,” said Religare Capital Markets Ltd in a recent report.
The government plans to add 18,000 megawatts (MW) of power generation in FY13 and the prime minister’s website shows that capacity addition was at 20,501 MW in 2011-12, much above the targeted amount of 17,601 MW. But, what is the point of capacity addition when coal linkages are not in place?
Total coal production achieved in FY12 was 539 million tonnes (MT), short of 554 MT target. The government has also said that Coal India will dispatch 470 MT of coal to all the sectors in FY13, an increase of 8.8% year-on-year. This again may not materialize given Coal India’s track record. As it is, Coal India said that it can assure only 60% of coal supply to power plants, against the 80% directed by the government.
The government has also fallen short of capacity creation and investments in the much needed ports sector because of regulatory hurdles, security reasons and poor infrastructure. In 2011-12, government had targeted 226.4 MT of capacity addition but achieved only 79.3 MT. The government also did not deliver on the investment front as only 50% of the target was achieved in FY12. If history is anything to go by, it is highly unlikely that the government will be able to meet Rs 14,500 crore investment and 224 MT capacity addition target in the ports sector in FY13.
The prime minister has announced a dedicated freight corridor (DFC) for Sonnagur - Dankuni stretch, but again this may not solve the freight traffic problem. Religare Capital Markets Ltd added, “DFCs are still at least 6 to 7 years away, even on paper. Until then our 230,000 wagons would travel 10 hours per day at a mean speed of 23 km.”
As Barclays points out, the “current decision by the government may at the very least increase the pace of tendering of key projects. However, land acquisition issues remain the key to the execution of these projects.”