Slowdown or consolidation?

After every available rating and analyst firm from Nomura to Dun & Bradstreet and India Ratings expressed a negative outlook on IndiaÂ’s infrastructure, the inevitable, unpleasant moment arrived when the advance estimates, officially announced early this month, stated that the nation can only achieve 5 per cent growth the current fiscal, the lowest in a decade, and 0.7 per cent lower than anticipated earlier. Some consumer wrath is to be expected, given that they are now accustomed to improving their lifestyle and spending habits almost every year, year after year, since the 1991 liberalisation.

Did infrastructure slow the growth down? You bet. Infrastructure growth braked from 6.6 per cent in 2011 to 4.4 per cent in 2012, and will likely show even lower growth this year. The large, sometimes gargantuan, proportions of the sectors are often blamed for bankability and financial closure problems, resulting in a slowdown in construction and the transportation sectors.

Look at the dismal turn of events in ports, as our Cover Story points out, with two of the most dynamic ports scaling down for contractual reasons, therefore limiting the growth of business planning on the part of their users: While Jawaharlal Nehru Port had to cancel a major expansion contract, Grup pulled out of Ennore. The latter is surely more concerning, as the factor has to do with not being able to raise the money. InvestorsÂ’ backing out of infrastructure projects is one of the two biggest factors for this yearÂ’s gloomy forecast. While risk-averse banks and interest rates are also perceived to be contributors, this year, the compounding factor seems to be the realisation of this fact by infrastructure companies. After all, it was in this fiscal that Lanco, GMR, GVK and a host of others decided to exit critical infrastructure domains.

Roads, one such domain, was the shocker this year. A drive from Jaipur to Kishengarh in Rajasthan—preceding the Kishengarh-Udaipur stretch which attracted an astonishingly high bid from GMR in 2011—evidences the thumping success of providing concessions to multi-axle vehicles. But companies that now co-own those stretches—GVK and GMR—have decided not to invest in the sector for a while. As the industry shied away from large ticket projects, the National Highways Authority of India (NHAI)—whose plans were to award 9,000 km this year, largely on non-BOT models—had to hastily postpone much of its highway-building activity. By no means does this necessarily mean that the industry views the sector with suspicion: Companies have also been tightening their belts for factors external to the performance or the potential of the roads sector. In those cases, where the reasons are more or less internal, the picture may not always be clear as crystal. The Anna Hazare-Arvind Kejriwal protests and “investigations” have also made companies as cautious as the government machinery for reasons that are obvious to most observers.

The year was also a period of discovery for restructuring loans, leading to a further spiral of caution and scepticism, particularly to state-owned power and transportation companies. Observers such as India Ratings maintain that this trend of restructuring is here to say at least in the next year.