By Matthias Williams and Manoj Kumar
NEW DELHI, Sept 2 Scrambling for remedies as
investors' faith in India sagged, the government said last week
it fast-tracked approval for a slew of infrastructure projects
worth $28 billion: but the stroke of a pen in New Delhi will not
The government hopes that speeding up the launch of hundreds
of new power plants, highways and oil exploration blocks will
breathe new life into an economy that has fallen off its perch
as an emerging market high-flier.
Growth in the latest quarter was the slowest since during
the global financial crisis, and the rupee
has tumbled ever deeper against the U.S. dollar.
Failing to get the projects off the ground would be another
However, there is no evidence to suggest that these projects
will somehow sidestep the obstacles that have hobbled
construction for years - from red tape and land acquisition
battles to banks' unwillingness to lend to a risk-prone sector.
Only a quarter of Indian infrastructure projects are
completed on time, according to a 2012 report by Ernst & Young
Financing will be one of the biggest challenges right now.
The infrastructure sector is one of the biggest contributors to
banks' growing bad loans, with outstanding debt of about $120
billion, and tight liquidity conditions mean debt-laden
companies will find it tough to raise fresh funds.
"These new measures are much too wonderful to be true," said
Eric Mookherjee, a Paris-based fund manager at Shanti India,
which manages Indian stocks worth more than $300 million,
including IRB Infrastructure Developers Ltd.
"Expediting approvals for the projects that were stalled for
years is not going to start the machines from tomorrow morning,"
he said. "The issue with infrastructure in India is financing,
and if liquidity is going to be sucked out of the market to
support the rupee it will be very hard for the banks to fund
HOOPS AND HURDLES
Anil Swarup, a senior official in the prime minister's
office who heads a group that monitors and helps steer projects
already cleared, said no companies had complained to his group
of a lack of progress. However, he accepted that a fast-tracked
project still faced many hurdles, including wrangles over land
acquisition and law-and-order problems at a state level.
"We cannot expect an overnight transformation," he said. "In
any project, there would be a number of issues and ... until
those are resolved, the project does not go on stream."
One beneficiary of last week's project clearances by a
cabinet panel was Essar Group, a diversified conglomerate with
interests in power, oil and steel. After a 5-year wait, Essar
was finally promised environmental approval to develop two coal
blocks that will feed a power plant in the state of Jharkhand.
The reaction of one company official, though, was lukewarm.
The approval may have come through, but a timeline for when the
company can actually start mining was still uncertain.
"Funding is linked to the environment clearance to the coal
blocks, and banks will release funds once we have all the
clearances. The announcement is a positive development, but we
have got nothing in our hands, so we will progress on this once
everything has been approved," said the official.
India's track record for infrastructure development is
miserable compared with China and most emerging market
economies, and its failure on this score has sapped growth.
The government has targeted spending of $1 trillion on new
projects over the five years to 2017, but it has fallen short of
previous funding and implementation goals, and much of the
country is still plagued by power blackouts and bumpy roads.
A land acquisition bill, which is aimed at speeding up
infrastructure and industrial projects by giving farmers better
compensation for selling their land, was passed in the lower
house of parliament on Thursday.
It takes about 295 days to acquire or lease public land in
India, more than twice the global average, Standard Chartered
wrote in a research note on Friday that cited World Bank data.
Getting private land takes 99 days, versus a global average of
Despite New Delhi's best efforts to get infrastructure
moving, the problem appears to be getting worse. The percentage
of total projects delayed on account of land acquisition-related
issues more than trebled to 11.3 percent as of March 2013 from
six years ago, the note said.
"How can you run through these projects when land must be
acquired before financial closure?" said a senior official at
the Planning Commission, a powerful government advisory body
that helps steer infrastructure policy, on the clearances. "You
can't talk things up. Look at the rupee, it's shivering."
The Federation of Indian Chambers of Commerce and Industry
was scathing about the bill, which will replace colonial-era
legislation, saying that not only will land cost more, the
process of acquiring it will be stretched by 4-5 years.
STOPPING THE ROT
The government's Cabinet Committee on Investment (CCI), set
up by Prime Minister Manmohan Singh in January, was charged with
stopping the rot by solving inter-departmental disputes and
speeding up clearances, especially environment and fuel permits.
Among its successes, the committee ended a 14-year saga
involving NTPC Ltd, the country's largest power
producer, and Coal India Ltd, the world's biggest coal
miner, over the construction of a 1,980 MW power project.
NTPC was initially granted permission to build the plant in
Jharkhand, but then Coal India claimed the site after coal
reserves were discovered underneath it. After years of dispute
and the establishment of a committee headed by a top civil
servant to look into the case, the CCI ruled in favour of NTPC.
However, NTPC still had more hoops to jump through before it
could finally issue equipment tenders. It had to move the
construction site by about 300 metres, and because environmental
clearances had expired they had to be obtained again.
Such hurdles are typical in India, where the average project
needs 56 separate permissions that can take two years to obtain.
Vinayak Chatterjee, head of the Feedback Infra consultancy,
said the clearances were a positive step, but resistance from
ministries keen to guard their veto rights has watered down the
"The CCI was originally conceived as a National Investment
Board ... and that was supposed to be a far more powerful body
which would have been empowered to give clearances," he said.
"The CCI does not have statutory powers to override line
ministries. So effectively it has become a pressure and
"I think the line ministries felt uncomfortable about their
powers being taken away, as usual," he said, referring to those
ministries in the line of approvals needed for such projects.
For example, the committee can take a decision to nudge Coal
India to provide fuel for a power project, but it cannot force
the miner to do so, or stipulate a timeline for the supplies, an
official at a major infrastructure group said.
"While the CCI has cleared the projects, there is no clear
uptick in activity related to such projects," Barclays said in a
June research note. "We believe that activity/investment related
to such projects could remain subdued, given the weak momentum
and sentiment in the economy - that is, the CCI clearance, per
se, is not the 'game changer' the government sees it as being."