Markets

Why infra firms should warn investors of ‘high political risk’

KS Badri Narayanan Chennai | Updated on January 11, 2020 Published on January 11, 2020

Change of guards in States often results in project cancellation

One more change of guard, this time in Maharashtra, and once again, infrastructure projects have become a casualty.

Soon after assuming office, the Shiv Sena-led coalition government decided to review several high-profile infrastructure projects that had been approved by the previous government, and has put many of them under the scanner.

Chief Minister Uddhav Thackeray said that his government had ordered a review of the projects as part of a wider audit and to determine the new government’s priorities.

However, he later clarified that no orders had been issued to halt any ongoing infrastructure project. Furthermore, no decision had been taken regarding the bullet train project, he added. “The only stay order issued is for construction of a car-shed on Aarey land in Mumbai for the Metro-3 line,” he said.

Despite these calming statements, investors remain wary — with good reason.

In May, when Andhra Pradesh witnessed a change of guard, the Jaganmohan Reddy-led government abandoned a whole lot of infrastructure projects worth thousands of crores of rupees.

Among them were the high-profile project to build a shining new capital city at Amaravati, in which a Singapore-based consortium of companies was involved. Also scrapped was a start-up area, planned over 1,691 acres, to serve as the financial hub of the new capital, and some irrigation projects. This has left the corporates behind the capital-building exercise in a quandary.

Such instances have reinforced the belief that change of governments in States in India are bad news for builders and investors.

The political risks are taking a heavy toll on infrastructure projects and are affecting investor sentiments, which already has been taking a knock from the global slowdown and geopolitical uncertainties.

Ambitious plan

At a time when Finance Minister Nirmala Sitharaman unveiled a ₹102-lakh-crore national infrastructure pipeline, in accordance with the Modi’s vision to make India a $5-trillion economy by 2024-25, investors perhaps have reason to be cautious.

Perhaps there is a case for investment advisors and even infrastructure firms to warn investors that investing in their stocks carries a high degree of political risk — and there is a strong chance that investors could lose a lot — or even all — of their investment.

Published on January 11, 2020
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