May 12, 2009 / 3:43 AM / 11 years ago

Slowdown, political uncertainty hit India infrastructure

MUMBAI (Reuters) - One of India’s most ambitious infrastructure projects, an $325 million eight-lane bridge running through the sea off Mumbai, opens next month after negotiating a maze of bureaucracy, courts and street protests.

Ten years in the making, the 5.6 km-long (3.5 miles) Bandra Worli Sea Link, aimed at easing the financial capital’s legendary traffic jams, is a symbol of the neglect of India’s infrastructure and the challenges such mega projects face.

Budget overruns, disputes between the state and private contractors and protests and litigation by residents and fishermen concerned at the environmental impact and loss of livelihood all but killed the project.

As India gets set to usher in another coalition government vulnerable to the competing pulls and pressure of regional groups after elections this month, the task of building a world class infrastructure on par with China seems even more challenging.

“We’ve had a massive under-investment in infrastructure in the last few decades and the result is blindingly obvious to anyone,” said Anu Madgavkar, a partner at McKinsey & Co.

“There’s no magic wand that will make our infrastructure problems disappear in a couple of years; even if we go full steam ahead, we’ll just about prevent the situation from deteriorating further,” she said.

At least the Mumbai sea link will see the light of day; dozens of other projects across the country face an uncertain future because of a combination of political instability and the worst financial crisis in decades.


India estimates it needs $500 billion by 2012 to upgrade its overwhelmed airports, potholed roads and inadequate utilities.

Easing regulations and a booming economy had drawn eager local and foreign investors to the table, but just as it seemed the public-private partnership model would ease India’s infrastructure woes, the financial crisis turned the tap off.

“Response from the private sector has been muted and there is a rise in risk aversion around the world. So long as the downturn persists, India faces hurdles making much-needed improvements to its infrastructure,” said Moody’ economist Sherman Chan.

Infrastructure projects, being capital-intensive, long in duration and exposed to economic cycles, are particularly vulnerable to a slowdown, with several in Asia failing or hit by delays and corruption during the crisis a decade ago.

Add to that India’s underdeveloped capital market and tussles over subsidies and land ownership, and the task is tougher.

“We still have a socialist mindset: we think the government has to provide everything, and that too at subsidized rates,” said Nitin Zamre, a director at CRISIL’s infrastructure advisory.

“Subsidies on water and power are politically sensitive areas, and the government is not willing to let go entirely.”

But with a fiscal deficit of around 10 percent of the GDP, government finances are not in good shape and there are constraints in managing and executing infrastructure projects.

Both the ruling Congress party and the main opposition Bharatiya Janata Party have promised to tackle the problem.

The Congress wants to build rural Internet connectivity while the business-friendly BJP talks about investments in highways and clean energy.

“In the short term, until a new government is in place, we’re in for a bit of a lean period as far as implementation of projects goes, but it is in the interest of the new government to quickly ramp up,” said Madgavkar.

Editing by Sanjeev Miglani

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