Home » Infra pulls and pushes in 2017

Infra pulls and pushes in 2017

Infra pulls and pushes in 2017

Infrastructure projects are fraught with implementation risks. However, the outlook for 2017 is positive, as government initiatives will find their target in a post-demonetisation world.

On paper, India´s infrastructure industry is poised for a phenomenal growth in 2017 with several trillion dollars worth of roads, highways, rail, airport and Metro projects simultaneously launched by Prime Minister Narendra Modi, a week before 2016 saw its last setting sun.

On the ground, however, investor sentiment was never on the uptake in 2016, although a fair number of mergers and acquisitions were reported in the infrastructure and renewable energy space. (see table 1)

The outlook for 2017 is positive, notwithstanding the demonetisation exercise of exchanging Rs 500 and Rs 1000 Indian currency for newly designed and minted notes. Says Sanjay Chugani, Senior Analyst with Equirus Capital, ´There is a lot of traction in the roads segment. The National Highways Authority of India (NHAI) and toll collection mechanisms in place have led to a lot of goodwill and faith being instilled into foreign investors. There are a lot of BOT opportunities as well as HAM projects.´ The newest flavour in the roads and highways infrastructure space – TOT – models of highway projects are faced with questions about the tenure of the concession, too much aggressive bidding and a large number of players vying for limited opportunities. These aspects need to be addressed for the TOT model to be successful, Chugani adds.

Does the Indian infrastructure industry possess the ability to professionally handle the large scale infrastructure projects announced by the Union government, through private participation, on an international scale of measure applied for execution with stringent timelines?
Says Vishwas Dhumal, CEO of Industrial Infrastructure at Raheja Corporation, ´Indian (infrastructure) industry is professional and capable enough to handle incremental increases. It has the ability. What is crucial to note here, is that the problems faced by the sector are not new problems. If the existing projects are run well and industry is helped with its teething problems, it is more than capable to handle and professionally execute projects of any scale.´

He places an important disclaimer to his statement and adds, ´The implementation risks associated with infrastructure projects are the main hurdles that need to be addressed. These include litigations, shift in popular will (that saw the deferment of toll tariffs at several toll booths in recent times), encroachments, political risks, sewage/power and water lines posing hurdles to right of way for the project developers.´

Another infra sector player, who prefers anonymity, told INFRASTRUCTURE TODAY, ´Not just industry, in fact the entire country today needs some adaptation time. The demonetisation effort is being followed up with an emphasis on digital banking transactions. A large portion of the labour force in India is in the informal sector, which is not used to banking their salaries as they find it inconvenient. Some will fall in line, but you cannot expect to convert the entire country in a short while. Having said that, the move from the ´user pin´ model of digital transactions to ´fingerprint´ and Aadhaar Card synergies introduced for banking convenience would result in people becoming more amenable to the digital way of doing business.´

He adds, ´Toll roads have found an acceptable way of improving and expanding business through the use of smart cards and online payments. Similarly, the government will have to find solutions and ways to facilitate the shift to the digital way of doing business.´

The outlook for infrastructure in 2017 may be tweaked by an incremental increase in banking finance (post demonetisation) and probably raised tax levies upon the capital and bond market transactions, as hinted by PM Narendra Modi in his New Year´s eve address last year, for providing long term finance for infra projects.

On the other hand, the New Year may also carry forward the delayed remonetisation process causing fresh tremors and potholes on the road ahead for development, which must be guarded against.

Leave a Reply