- A third of 1,000 projects valued at $210 billion are delayed
- Persistent cost and time overruns pose risk to India growth
Prime Minister Narendra Modi is starting to see some success in getting infrastructure projects moving again.
About a third of more than 1,000 projects valued at 14 trillion rupees ($210 billion) are delayed as of January, down from 42 percent a year earlier, according to government data released on Thursday. Cost overruns have come down from 19.8 percent to 18.4 percent in that time, it showed.
Modi has made reviving investment a priority since he took office, taking steps to ease bottlenecks and entice foreign companies to set up factories. Yet bad debt, weak global demand and difficulties in pushing through key reforms threaten to hobble the world’s fastest-growing major economy.
“Many of the projects today are stuck because of stressed assets," said Hemant Kanoria, chairman of SREI Infrastructure Finance Ltd. “If someone has gone to the hospital, is taken to the ICU and a quick treatment is not given, the person will die. It’s similar with infrastructure projects."
About 5.1 percent of Indian bank loans have gone sour as of Sept. 30, more than three times the bad-debt ratio at Chinese banks, as borrowers find investments stuck due to slowdown. Central bank governor Raghuram Rajan has given lenders until March 2017 to clean up their books as authorities identified 8 trillion rupees ($120 billion) of stressed assets in the system.
Delays in land acquisition, environment clearances and contractual issues are some of the biggest roadblocks for India’s infrastructure projects, according to the statistics ministry, which monitors ongoing federal government projects costing 1.5 billion rupees or more. That leads to time and cost overruns.
The number of stalled projects fell in the past six months due to faster government clearances in the power and chemical industries, according to a report released by the central bank this week. Proposals to set up new factories remained subdued due to demand uncertainty and muted business confidence, it said.
Markets should scale back expectations of a strong cyclical recovery, Deutsche Bank said in a report on April 5, citing data from Centre for Monitoring Indian Economy Pvt., a local research company. It showed that projects are delayed primarily because investors are wary of deploying capital.
"While earlier investors complained about problems with land acquisition, availability of raw materials, and delays with regulatory clearances, those factors do not rank high any longer," it said. "The drag now principally comes from a lack of conviction about demand, locally or externally."
About 38 percent of the delayed projects are in roads and highways, followed by power and coal, according to the statistics ministry.
India’s northeast states marred by insurgency have seen cost escalations as high as 800 percent. Mizoram, a small state in India bordering Myanmar, has waited 18 years for a dam that will generate 60 megawatts of electricity and end its power woes. Construction is finally expected to be finished by October after issues over land compensation delayed the project and escalated its cost by almost four times.
Modi defended his record at a Bloomberg event last month, saying that credit growth is picking up and work is starting again on projects that suffered in an economic downturn. Investments worth a total 1.3 trillion rupees were completed in the year that ended March 2015, the highest in at least eight years, according to data from the Statistics Ministry. Projects valued at 978 billion rupees were completed April-December.
Modi has proposed to increase infrastructure spending by 23 percent to 2.2 trillion rupees this year to support growth in Asia’s third-largest economy. With a plan to narrow the fiscal deficit, however, any downturn in India’s finances would probably lead to cuts in infrastructure outlays before cuts to welfare spending.
India is forecasting growth of as much as 7.75 percent in the year started April 1. The Asian Development Bank projects 7.4 percent, down from the previous year’s 7.6 percent estimated expansion.