There has been a growing emphasis on infrastructure development in the era of post liberalisation .This is in stark
contrast to previous years where there was little emphasis on the asset creation of infrastructure , with government
being both provider and facilitator of infrastructure.Infrastructure spending has been and will remain a high priority for the government, providing massive scope for employment and investments, with huge wealth creation opportunity and the sector having low attrition rate of 8-9%.
Challenges in infrastructure development in India:
The progress of infrastructure development has been in the recent years, with significant shortfalls in planned investments.This problem is compounded by the fact that many of the announced projects are yet to be completed, with large time and cost overruns.Figures sourced from Government reports reveal that nearly 276 projects out of 566 projects tracked by Ministry of Statistics and Programme Implementation have been delayed.
- Lack of coordination between various Government agencies.
- Inappropriate structuring of the projects, particularly of demarcation of risks and rewards between Government and private sector
- Lack of a proper dispute resolution mechanism between private players and government agencies.
- Debt burden of infrastructure developers, as a consequence of execution delays and irrational bidding.
Imperatives for Future Infrastructure Development
But for the aforementioned forecasts to materialize, the sector requires significant intervention accompanied by an
overhaul of the current way of doing business across the various participants – Developers, EPC players, Government etc. Although the current economic scenario has slowed down the development of the sector, government would need to explore ways of keeping the sector moving. Government has made some progress on key issues, but much still needs to be done. But for the sector to rebound in the coming years, there is a need for decisive action and support over four broad areas.
1.Reduction of regulatory uncertainty and delays –
The Government needs to create a mechanism for single window clearance for various approvals. This would require a proper regulatory body overseeing the progress of approvals and coordinating with various Government bodies. Efforts are also required to ensure enforcement of contracts in a time bound and transparent manner to attract private investment and FDI.
2. Appropriate Structuring of projects –
As private players have become wary about risk-return of projects, Government needs to put in adequate thought on the appropriate mode of project execution. Adequate care also needs to be put in developing contract terms to provide sufficient safeguards for private players from extraneous circumstances.
3. Developing financing mechanisms to suit the sector’s needs –
Infrastructure companies are finding it difficult to raise funds, as banks have restricted exposure to the sector while
funds from abroad are not finding a suitable avenue to invest in the sector.
4.Efficient project management (from bid to execution)–
Private companies need to evolve their processes to employ best-in-class project management tools and techniques. The bidding and estimation process needs to be tempered with greater emphasis on proper revenue estimates and identification of project risks. Companies need to address issues related to lack of skilled manpower and improve their current sourcing & project management practices, to reduce the incidence of cost and time overruns during execution.
The opportunities for future growth of the sector are enormous but there are also significant challenges that need to be overcome in order to make this infrastructure dream a reality.