New Delhi: The Economic Survey 2009 has expressed concern over the sourcing of funds for India’s massive infrastructure development plans, saying that the Rs20.56 trillion in projected investment over the five years ending 2012 looked daunting.
Sectors such as air transport and telecom, which were major recipients of external commercial loans, witnessed a decline in fund inflows in 2008-09 as the US and Europe slipped into recession and domestic economic growth slowed.
Equity financing suffered as well, with infrastructure companies raising less money through public and rights issues in 2008-09, mirroring the overall trend across sectors. Public share sales and rights issues—sale of stock to existing shareholders—fell from Rs87,029 crore in 2007-08 to Rs14,720 crore in 2008-09.
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The survey estimated a shortage of Rs1.62 trillion in debt funds over the 11th Plan period (2007-12).
Interestingly, it said that while bank credit grew from Rs30,122 crore in 2006-07 to Rs61,745 crore in 2007-08 (and Rs66,770 crore in 2008-09), investment by public sector insurance companies fell 64% from Rs27,656 crore to Rs8,309 crore in 2007-08.
Overall, the survey said investments in the sector by both public and private sector insurance companies fell from Rs28,906 crore in 2006-07 to Rs10,399.8 crore in 2007-08.
Insurance industry executives, however, said their investments had increased.
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“Our preliminary data, which is unaudited, shows infrastructure spending increased by Rs17,000 crore in 2008-09 to Rs1.12 trillion. Investments stated in the survey could be low because equity investments were included and valuations are lower now,” said S.B. Mathur, secretary general of Life Insurance Council, an umbrella body.
Analysts said any decrease in investment numbers represented merely a pause. “Even in 2008-09, the fixed investment to GDP (gross domestic product) ratio went up. It (infrastructure investments) may not be proceeding at the pace it needs to. There is definitely a pause. Maybe they will have to shift it (investment projections) from the next five years to the next seven years,” said D.K. Joshi, principal economist for ratings firm Crisil Ltd.
Joshi added that the big drawbacks for the sector, given the context of the global slowdown, was the level of risk that was shared between the private sector and the government while developing projects through public-private partnerships.
The UPA government follows a policy of pushing private sector investments in infrastructure, to free scarce budgetary resources for spending on social sectors such as health and education.
Investment in infrastructure, especially roads, was affected last year, with companies staying away from some projects that were up for bidding.
“If the sector is not completely derisked then the state will have to underwrite the risk,” Crisil’s Joshi said. “There is a power shortage in India. I would rather have electricity than not have electricity and pay a lesser bill.”
Individual sectors also showed the effects of the slowdown.
The Indian Railways faced a tough year in 2008-09. Its growth rate during the year was 4.9%, down from 9% in the previous fiscal. The slump was largely on account of freight loading having slowed in the iron ore and foodgrain segments.
While iron ore loading slumped 4.6%, foodgrain transportation through rail also fell 10.7%.
However, railway passenger traffic grew by 6.9% compared with 5% in the previous year.
Similarly, the ports sector too faced a demand crunch during the same period. In 2008-09, the cargo handled by major ports registered growth of 2.1% against 13.9% in 2007-08.