Time for some ground work

Infrastructure is critical for economic development and increasing India’s global competitiveness. Good quality infrastructure is important, not just for faster growth but for inclusive growth as well. Today’s economy is largely riding on the back of infrastructure development. The macro-economic outlook for India is promising despite the slowdown and cautious business sentiments; the long-term outlook on India is ‘rock solid’. In 2012-13, GDP growth fell to its lowest in recent years with investments barely trickling in. Major internal concerns are slowdown of reforms, governance, red tapism, statutory clearances, and loss of investor confidence.

External factors such as global recession have also impacted the economy. The downturn in investments is also a result of high domestic interest rates on the one hand, and bottlenecks in clearance of projects on the other. The uncertain economic environment has delayed many investment decisions.

GROUND REALITIES

The long-term outlook for the construction industry remains optimistic; but there are concerns about its immediate future. Rising interest costs, stagnating orders, slowdown in awarding projects and an increasing number of stalled projects are just some of the challenges the industry faces today.

The ports sector stands out as one of the poorest performers in need of extra-special attention, reform and rejuvenation in the next few years. Mining is another sector that faces major challenges. Huge delays in getting clearances and private mining regulations are holding back speedy implementation of plans. This has affected power generation.

The 12th Plan’s infrastructure intent seems aggressive, at an outlay of $1 trillion, but we see little linkage between reforms, plans and outcomes. Business confidence is low despite a realistic budget and announcement of a slew of policy measures to boost this sector.

Unless policy announcements are rapidly converted to rapid implementation, the challenges will mount and immediate revival in infrastructure will be a major concern.

India Ratings has recently downgraded the outlook on the domestic construction sector to ‘negative’ due to challenges faced in the execution of projects — on account of delays in environment clearances and other issues. The latest Index of Industrial Production numbers also remain unimpressive, pointing towards supply bottlenecks.

Although we have seen some high GDP growth rates, this growth in recent years did not create significantly more jobs. Now, with GDP growth having weakened, employment growth has probably worsened.

BUDGETARY NEEDS

To arrest this concern, manufacturing has to grow significantly. With the roll-out of the National Manufacturing Policy, it is expected that the share of manufacturing in our GDP will rise from 16 per cent to at least 25-26 per cent in one decade and create 100 million skilled jobs.

Only if this happens will we be able to reap the benefits of demographic dividend, of 54 per cent of our people being under the age group of 30 years.

Second-generation State reforms in the areas of land acquisition, power, agriculture and acceptance of Goods and Service Tax are also key to the proposed growth trajectory.

Visible action on the ground to tackle the deceleration in growth will increase confidence among investors, both domestic and foreign. Where reforms have already begun, they should be swiftly completed with a clearly announced time-frame. There are also many areas where reforms have not yet gained momentum, and these will now have to be addressed with a sense of urgency.

Though India traditionally built its infrastructure with government funds, private sector participation has increased in the last 10 years and now accounts for almost 40 per cent of the total spend. At a time when infrastructure projects face multiple challenges, such as delays in approvals, environment clearances, and land acquisition, funding these projects is becoming increasingly difficult.

The Twelfth Plan is likely to have large funding gaps. Additional private sector investment of about Rs 6.1 lakh crore will need to be channelised over the duration of the Plan, assuming budgetary allotments don't change (according to a recent report by Deloitte Touche Tohmatsu India).

Besides National Manufacturing Policy, another encouraging move has been the setting up of Cabinet Committee on Investment (CCI) to fast-track regulatory clearances for industry and infrastructure and to resolve inter-ministerial differences. CCI so far has cleared mega projects worth Rs 74,000 crore that were stalled because of lack of statutory clearances. However, the full impact of this will be felt only in the next fiscal.

CRITICAL AREAS

There will be focused attention on achieving the production and capacity creation targets in some key public infrastructure sectors such as coal, power, roads and Railways, which will act as a stimulant to private economic activity as well. The inclusion of new sectors — mass rapid transit system and renewable energy in the planning framework — reflects the infra march from traditional to modern.

Among several policy measures, some critical areas require special focus: Land acquisition reform, bidding process reform, speedy environment and forest clearances and setting up monitoring groups. States should address concern areas that fall within their domain.

The most logical way forward for building the much-needed infrastructure is to ensure that all statutory clearances, including land acquisition, are completed before tendering any project. This will attract many more bidders and bring down costs dramatically.

Business will then be able to accurately estimate costs without having to factor in cost overruns. Infra projects are for the benefit of the country, people, trade and industry, progress and growth — these are the primary responsibility of the Government. This will work in the best interest of the country.

The bottomline: Growth revival, driven by investment led infrastructure, is not simply about projecting a set of numbers, and waiting for them to happen. The mantra of the 12th Plan, “faster, sustainable, and more inclusive growth” requires laser focus interventions towards creating the right mechanism to achieve the Rs 56.32 lakh crore infra investment target.

(The author is Vice-Chairman and Managing Director, TIL Ltd.)

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