India infrastructure: big ambitions, big potential, big money, little happening. This is what I feel, sums up, what's happening in the Indian infrastructure sector. Government's extended enthusiasm about the sector hasn't been able to get the big infrastructure projects moving. There are lot of PPP projects coming up but what's going wrong? Many Infrastructure and Power shares are seeing constant ups and downs in the market. What is keeping the big money away? Surely the private investor is upbeat on the sector and so is Indian mutual fund. But the big money from western FIIs and Pension funds doesn't seem to have embraced the sector gladly.
I believe that there are few sore issues which needs to be taken care of so that the Indian infrastructure sector can be put on fast track asap.
1. Dilly Dally attitude of government which ensures unending delays along with the corrupt governance model especially at the grass root level.
2. Absence of strong long term debt market in India. Corporate bond market is almost non-existent (specially compared to domestic stock market or int'l bond market). Indian banks are the only funding source which anyways charge very high interest rates and come with many more strings attached. Any ways Indian Banking sector is not the most revered one in the world.
3. Infrastructure projects need long term loans, for which insurance and pension funds are extremely suitable. If we can't tap the western insurance and pension funds then we can use our own domestic insurance and pension funds. However, they are not developed enough. Also, they need to be opened up further to attract foreign funds. LIC might need to play a decisive role in the infrastructure projects in India which in turn needs a hell lot of money today.
4. India is competing with the likes of China, Korea and Brazil for infrastructure related funds. While India plans to spend $500 bn on infra. projects from 2007-2012, China has already come up with a plan of over $550 bn investment in infrastructure projects just to fight the recession. According to some estimates China might be investing over $5000 bn in next 2 decades. So the competition to get the funds is likely to remain high in years to come.
5. If funds are such a big problem then why can't Indian government just print money and pay for it. The problem is not only the high budget deficit and high public debt that we are already running in order to fight the recession. More importantly the very nature of infrastructure projects which takes years to start paying the benefits would mean inflation. No matter how the money comes, the gestation period of infra projects would mean calls to inflation in short term. Infra projects anyways take a long time to complete and still longer in India. The time required has to be tightened. This would require minimum gov. intervention, minimum red tapism, increased transparency, consistent flow of fund and last but not the least, latest technology. Latest technology would again require FDI flowing in.
So quite a bit of challenges to face.
Please feel free to post your views, comments, criticism, appreciation. I would be happy to explain/discuss any part of the article if need be.