This year was truly a vortex of a perfect storm, yet it has been a year of contrasts. The Indian industry is in dire need of political stability and the strength of leadership at the Centre, but at the same time, India recently overtook China as the most attractive investment destination in the world. This year, foreign institutional investment (FII) is at its peak, having crossed Rs 1 lakh crore. Yet foreign equity and debt have been instrumental in the current infra finance hurdle. Road contract awards under BOT hit rock bottom, while EPC contracts both at central and state levels have been sailing smooth. Power sector woes continued because of poor offtake and fuel prices, but nearly 90 per cent of the projects that the Cabinet Committee has cleared after special groups fast-tracked clearances and other bottlenecks are in the power sector.
Was the depressing sentiment in the infrastructure industries mostly a reflection of the UPA government´s confused and disparate signals, the bureaucracy´s inaction as a caution against social groundswell since 2011, macroeconomic factors, or a perception?
As the ground reality will endorse, it is a combination of all these elements. Foreign banks had, under advisement from their governments or independent counsel, had been rather tight for about six months earlier this year. Domestic investors, too, became overcautious. Over the past few weeks, rumours of a thawing in the perception have trickled in. This late blooming of foreign investments comes as the best indicator of the shape of things to come, but has its roots in the wrong reason that an industry-friendly Narendra Modi will assume the reins as Prime Minister and therefore solve all the problems. The maturity behind creating such volatility must be questioned.
Closer home, the private sector has been quick to pick holes when convenient. Whether it is the UMPPs, the gas fields, or National Highways, the private sector does not seem to have reconciled to infrastructure´s biggest problem for investors long tenures with low returns. Private players said traffic projections, in the wake of the economic slowdown, were down to half the original. This has puzzled the Planning Commission, NHAI and the C Rangarajan Committee, and led to an independent evaluation of the traffic.
So, while the light at the end of the tunnel is visible, this was the year when the first signs of unease about PPP arose in India´s infrastructure. India has braved slowdowns before, but it gets discomforting to understand how private and public entities cannot function in tandem. When GMR pulled out of the biggest highway project ever in India, why didn´t the government get into a huddle on whether the contract could be renegotiated? Why didn´t the finance ministry take firm and quick steps to avert the cascading effect it resulted in? And why did the private entities not provide for slowdowns while projecting the traffic?
Today, many practitioners are disillusioned with PPP, and they have themselves or their cohorts to blame, along with the government´s lethargic ways. But the contrast in that, too, is that smaller-ticket projects in urban infrastructure and renewable energy are drawing developers as the two most dependable segments today: With as many 16 metro rail projects lined up, and JNNURM II about to roll mid-year on a more evolved and larger scale, that´s where vendors and manufacturers are finding major traction. With Gujarat, Rajasthan and Karnataka poised to award solar projects at lucrative prices (Rs 6.50, with a cost of Rs 9.50, therefore with hugely reduced subsidies than before), that segment will be another poster boy in the power sector. Wind and micro-hydro will make major inroads in the coming year. So that light at the end of the tunnel another combination of real and perceptional factors is truly approaching.
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Look forward to a brighter new year, and wish you one too!
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