Saturday, May 23, 2015

Infrastructure Development a Key of Economic Growth

Infrastructure Development a Key of Economic Growth

Infrastructures is the backbone of any economy, because of which manufacturing and services sector will flourish.

Why to manufacturing and services to flourish? To generate employment for 50M unemployed, 100M underemployed and 12M inflow of new workforce joining per annum in India.

India invested well in infrastructures during 1992-2010 at the rate of 4.7% of GDP. However others nations were also investing on infrastructures, World (3.8%), Developing Countries (5.1%), Developing Asia (7.3%), China (8.5%) and Brazil (2.2%). China did well due to advantage of domestic savings and corporate profits investments.

India did well because its GDP reached to the level of US GDP of 1940 but invested more on infrastructure that of those days US. It is spending more in social sector and delivered growth at early stage of economy with full political representations. Due to voters awareness no Government can afford to overlook social spending.  Therefore there is decrease in capital expenditure as share on GDP and increase in subsidies & social spending as share of GDP. 

India need $ 1 trillion for infrastructure investments and the government resources are not sufficient enough to take a call. Therefore PPP was the option. And now, Indian PPP programme is the largest in the world. There was massive investments in last 15 years by private sectors.  Power, Telecoms, Roads & Bridges, Ports & Airports, Metro, the succ3 stories are many. A success of entrepreneur talent, banking support, robust equity & capital market and CA- Lawyers skills preparing contract.

The growth of telecom sector benefited the Nation. The unprecedented growth of Telecoms with 5% overall in 2003 to 73% today and Rural coverage increased from less than 1% in 2003 to 40% today.

The power generation of 2.5 lakh MW happened due to the PPP. India is lighting but more lights to come as its per capita energy consumption in 673 kWh. (Russia:6533, China:3298; South Africa: 4694; Pakistan:448).

The improved network of 4-6-8 lanes roads and development of ports (cargo turnover) and airports are visible.

But who flourished? The growth of its stakeholders was higher than a common man. Private sector, politicians, CA-Lawyers, and bureaucrats became rich, richer, richest.

The market cap of leading infrastructure companies is Rs.1,31,736 Cr (Adani Ports 61532 Cr, Reliance 16333 Cr).

But now we have reached to a lock jam stage of economy.  The period of 2010-14 brought challenges to us. Investments derailed.

Banks share in GDP is going down and NPA is going up.

India to invest 10% of GDP on infrastructure to maintain growth rate of economy. But estimating 6% investment and further booster of 1.5%, the Gap of 2.5% is yet to be filled.

How to raise capital is the biggest question in front of the new rulers. Because Indian banks have stopped funding (selective) and no company is in a position to raise money from equity market. The game become tough and challenges of new land acquisition act, environment and other regulatory approvals, short cuts by corrupt practices, gaming bid, etc, are to overcome, an uphill task.

SC canceled 123 telecom licenses and 214 of 218 coal blocks.

In Power Sector, 1 lakh MW (Rs.5 lakh Cr) (33%) power generation projects are under distress due to coal block issue. 14000 MW Projects (Rs. 70,000 Cr) held up under SC judgment, 25000 MW Projects held up in coal linkage problems and power purchase agreements, 24000 MW installed capacity is dysfunctional without Gas. The supplier (Big R) is supplying 8 Mcm against the supply agreement of 80 Mcm demanding price rise from $ 4.34 to $ 8. The opportunity cost of loss of electricity is very high. And a big risk of NPA, loss to the public banks.

"Influence Power of Big Business Houses is disproportionately Large".

Rs. 3.5 lakh Cr is a debt came from public sector Banks, of which 2.5 lakh Cr will go defunct may put the bank in losses of 1.5 lakh Cr with a potential NPA of Rs. 60,000  Cr. The loss of public money.

Coal sector is in shortage of 265 MTs coal as indigenous availability of 715 MTs is insufficient to meet the demand of 930 MTs. There is price risk in importing coal and electricity tariffs are controlled by the State. The revenue earning is at risk.

It's time to rope in NTPC to generate 35000 MW with Government money.

Renewable energy is a silver line in dark clouds.  An ambitious target to generate 72000 MW by 2022 from this source is fixed. Banks are ready to finance as Wind Energy aligned with thermal power costing and Solar energy came down to Rs.6.5-7/unit with further come down to a viability level. Power generation through generators costs Rs.12-20/unit.

The weaknesses have came out teaching us lessons. Integrated comprehensive view missing. All stakeholders are not talking to each other. Coordination and understanding a challenge. CVC, CAG, CBI and judiciary threatened the administrator to use discretionary powers. They are not joining as partners of decision making but ready to read retrospectively without the capacity of understanding macro issues of development.

Now a need of a Charismatic Leader to communicate and collaborate to all stakeholders including judiciary, CVC, CBI, CAG and the people of India. Take bold decisions and give more discretionary space to administrators to take decisions.

UPA started with pro business but ended with pro poor and anti business. NDA started with " sab ka saath sab ka vikas", hope will make it pro people, pro business. "A Win Win".

Never forget the informal sector, giving employment to 80-90% and starving without bank finance. Bigs are converting into NPA and Smalls are starving. Bridge the Gap.


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