Mumbai: Delays in execution and lack of accountability are bigger challenges for India’s infrastructure sector than finding money to finance new projects, said a report by UK investment bank Execution Noble and Co. Ltd, released on Wednesday.
Poor coordination between Union and state governments, difficulty in getting land clearances, unclear tax laws and lack of transparency in the bidding process are crucial impediments to the sector’s growth, said the report, which is based on interviews with 26 bankers, private equity financiers, private developers and government officials involved in the sector.
“Because projects are not being signed off, there is too much capital chasing too few projects, which has driven down returns by 200-300 basis points in the last few years,” said Saurabh Mukherjea, head of Indian equities at Execution Noble and one of the two authors of the report.
A basis point is one-hundredth of a percentage point.
To open a hotel, Mukherjea pointed out, a developer needs 60 signatures at different points of time. For larger projects, the list of signatures is longer—delaying the projects.
“Money is not a constraint for India’s infrastructure ambitions; it’s the government’s incapability to design and present bankable projects,” the report cited an unnamed chief investment officer of an Indian private equity fund as saying. “If the internal issue of project planning is addressed, then one can start worrying about the external issues.”
HSBC India’s chief executive Naina Lal Kidwai, who was present at the release of the report, said the challenge lies in quick execution. “Immediately, financing is not an issue but long-tenure finance could be an issue in the medium to long term. For immediate concerns like land acquisition and clearing mechanisms, there are no easy answers.”
Execution Noble suggests that the government start a single project creation and implementation body, offer tax breaks for infrastructure firms and improve Centre-state coordination to quicken the pace at which projects are completed.
The report estimates India currently spends $60-70 billion (Rs2.7-3.2 trillion) on infrastructure every year, and an extra $30 billion expenditure will add $45 billion, or approximately 4%, to the gross domestic product.