Indian infrastructure builders blame government for woes

MUMBAI Sun Nov 13, 2011 9:12am EST

MUMBAI Nov 13 (Reuters) - Government paralysis, bureaucratic stonewalling of projects and corruption.

Indian infrastructure firms on Sunday vented their frustration during a World Economic Forum event in Mumbai at what they saw as needless brakes on growth in a sector key to the country's prosperity.

Asia's third-largest economy plans spending $1 trillion over the next five years to expand its clogged roads, tackle huge power shortages and overhaul its creaking railways.

Lacking the financial muscle that China has to bring its infrastructure up to speed, the Indian government has turned to the private sector to fund half of that target.

"The government has, by necessity, given lots of space to the private sector," said Rajiv Lall, chief executive officer of Infrastructure and Development Finance Co.

"But having unleashed this genie, it has struggled to keep pace with it ... enthusiasm and skills of private developers far outpace the government's ability to provide support."

However, India's ambitions have been crimped by corruption scandals that have sparked huge protests against Prime Minister Manmohan Singh's government and slowed decision-making on big projects.

Ajit Gulabchand, the chairman and managing director of Hindustan Construction Co Ltd, said there is a "huge slowdown" in infrastructure-building in India.

"There are many reasons for it: the scams have created a lull in decision-making, people are afraid to take decisions," he told Reuters in an interview on the sidelines of the event.

"India has hurt itself by stalling projects," he added.

POLICY VACUUM

Infrastructure developers complain that the government has not kept its side of its bargain by failing to create a policy framework to allow the sector to grow.

"There is no sector where the policies are consistent, where policies are long term, where policies are really thought out," said Ravi Sharma, chief executive officer of Adani Power , a unit of one of India's largest private sector infrastructure players.

"And therefore most of the time, when the sector starts doing well, suddenly it trips," he said.

This matters. Losses from poor infrastructure shave an estimated 2 percent off India's GDP and add to pressure on inflation that remains above 9 percent.

"If goods are transported from Gurgaon to the Mumbai port, they pass through 36 checkposts and can take up to 10 days," said Rudolf Hug, chairman of Switzerland's Panalpina Welttransport Holding, a freight mover.

The distance between those two cities is about 1,400 kilometres (870 miles).

The pace of construction in almost every sector, from power to highways to ports, has slipped behind New Delhi's targets. A top government official has said India is likely to miss its $500 billion infrastructure-building target for the five years ending in March 2012 by 10-12 percent.

"There is a policy pause," said Subbarao Amarthaluru, the chief financial officer of GMR Infrastructure Ltd, whose projects include an expansion of New Delhi's airport. "Things will slow down," he added.

The slow pace of change in India has prompted firms to scout for construction opportunities overseas, including Africa, Harpinder Singh Narula, chairman of DS Construction, said on Sunday.

Firms struggle to acquire land for projects, while obtaining clearances from the environment ministry and other regulators can take years. Bureaucracy and corruption mean the pace of contracts being awarded remains slow, firms complain.

HCC's Lavasa project is a textbook case. A $31 billion township in the hills of the western state of Maharashtra, Lavasa was stalled for 12 months due to wrangling between the state and central government over environmental clearance, costing the firm $400,000 a day.

The project won conditional clearance on Wednesday to resume construction.

The lack of clarity surrounding Lavasa's approval, and similar tussles over other projects such as South Korean steel major POSCO's plant in eastern India, have spooked investors and harmed foreign interest.

"It is imperative that we quickly turn the atmosphere around by bringing some speed into the decision-making and keep some old promises of reforms and quickly pass them so that we get the feeling India is going places back again," said Gulabchand, whose group has a turnover of $1.6 billion.

For more Reuters coverage of the World Economic Forum India Economic Summit, click:

here (Additional reporting by Prashant Mehra; Editing by Tony Munroe)

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