Indian Infrastructure Sector - Mr. KC Chakrabarty

The slowing of the economy will have a negative impact on the infrastructure companies. India Rating has also maintained a negative outlook on infrastructure sector.

The following are the points of the KC Chakrabarty (Deputy Governor, RBI) Keynote on Infrastructure Financing in India. 

Hurdles faced:

Currently, more than 55% of the projects are stuck due to regulatory controls like lack of clearances and delay from government or the Supreme Court. This puts a major pressure on the banking sector as infrastructure being a capital intensive, large chunks of capital gets blocked while regulatory actions are taken therefore turning loans to NPAs. 

Stalled Progress: 

In Mr. Chakrabarty's Words: There has been no dearth of policy pronouncements and reengineering of processes aimed at improvement in the investment climate for infrastructural projects. However, there seems to be little headway insofar as achievement on ground is concerned. Let me highlight some disconcerting facts:

• Out of 576 SEZs that have received formal approval, only 172 are operational
• Against a target of awarding road projects aggregating 50621 kms during 2008-13, only 10690 kms have been awarded. Many of the projects awarded have yet to see commencement of work due to problems in achieving financial closure, delays in land acquisition and obtaining environmental clearances
• Out of 16 Ultra Mega Power Projects planned, contracts for only 4 were awarded. Out of this only one has become operational and another is nearing completion and that too much beyond the scheduled dates. Even the one project that has commenced operations is running much below capacity. Lack of clarity on coal import, forest clearances and land acquisition delays are creating impediments. 
• Under the New Exploration and Licensing Policy for exploration of crude oil and natural gas, of the 251 blocks allotted, 110 have reported discoveries but only 6 are actually operational.

Credit Space:

Outstanding bank credit to the infrastructure sector, which stood at Rs. 72.43 billion in 1999-2000, has increased steadily to Rs. 7860.45 bn in 2012-13, a compounded annual growth rate (CAGR) of 43.41 per cent over the last thirteen years against an overall CAGR of bank finance to all industries at 20.38 per cent during the same period. The share of bank finance to infrastructure in gross bank credit has increased from 1.63 per cent in 2001 to 13.37 per cent in 2013. 

Overall the infrastructure is not lacking due to financing troubles but rather due to administrative and regulatory hurdles.