Posted by : Sajith Sreedharan on March 18th, 2020 in Infrastructure Improvement Process and Advice

The present-day challenges that the Indian infrastructure industry is facing are neither new nor exclusive to India. And they are unlikely to be resolved anytime soon. While various forward-looking mega infrastructure projects like Dedicated Freight Corridor, Delhi Mumbai Industrial Corridor, and Petroleum, Chemical and Petrochemical Investment Region (PCPIR) have been announced over the last decade or so, many of these have still a long way to go towards reaching their finishing point due to various reasons.   Since the past several years, we as a country have learned many valuable lessons while conceiving and implementing such large-scale infrastructure projects. In the process, we have identified several underlying factors for both successes and failures, particularly those related to policy, marketing and the level of preparedness for future market conditions and technologies. However, identifying these factors is no longer enough. Learning the right lessons from them is even more critical to ensure the development of a conducive, sustainable environment for steady, unhampered growth of the infrastructure sector in India.

Traditionally, it has always been the responsibility of the Government of India (GoI) to provide infrastructure services to citizens as these are typically high-risk, capital-intensive projects with long gestation periods. But the government’s sole ownership in infrastructure projects and a significant level of inefficiencies in the system had negatively affected the infrastructure creation process post independence. Therefore, in 1991, under the Prime Ministerial leadership of P. V. Narasimha Rao, the GOI started to focus on creating a more enabling environment for private participation in the infrastructure sector. Since then, the industry has witnessed steady progress although there are still many impediments that prevent us from tapping into its full potential.  As India sets its sights towards growing into a $5 trillion economy by 2024, it faces many challenges in infrastructure development and growth. These include:

  • Creating long-term, bankable infrastructure projects
  • Facilitating faster execution of infrastructure projects without inordinate delays
  • Maintaining, and more importantly, enhancing  investors’ confidence in these projects and;
  • Achieving maximum value out of infrastructure development projects

In December 2019, the GoI released the National Infrastructure Pipeline (NIP), a detailed sector-by-sector study and compilation of infrastructure projects scheduled all the way up to FY2025. The study has identified infrastructure projects with a total investment of Rs. 102 lakh crores.

Considering the welcome developments in some of the key sectors identified below, progress on target infrastructure creation projects has so far been quite encouraging :

Airports

The Public-Private Partnership (PPP) model for airport privatisation has evolved considerably over the past 20 or so years. Prior to this period, calls for privatisation would usually receive a lukewarm response from bidders. Over time, with lessons learnt from previous privatisation projects involving the airports in New Delhi, Mumbai, Bengaluru and Hyderabad, the provisions in the concession agreements – including those concerning ‘till mechanism’ and ‘revenue basis’ – have undergone many favourable changes.  As a result, projects for the privatisation of airports have been gathering pace in recent times.

The airports at Lucknow, Ahmedabad, Jaipur, Mangalore, Thiruvananthapuram and Guwahati were privatised for operations, management and development on the basis of the Public-Private Partnership (PPP) model in February 2019. Subsequently, the Airports Authority of India (AAI) has decided to privatise six more airports in the country: Amritsar, Varanasi, Bhubaneswar, Indore, Raipur and Tiruchirappalli (Trichy).

In other welcome developments, Zurich International Airport has won the bid to build and operate Jewar International Airport in Greater Noida (Uttar Pradesh) which will act as a second airport for Delhi. Further, Navi Mumbai International Airport (NMIA), which is expected to function as a second base for travellers from Mumbai is likely to be completed by FY2022.

City Gas Distribution

The past few years have witnessed considerable growth in the City Gas Distribution (CGD) sector.  Multiple rounds of bidding over the past decade have led to gradual geographical expansion of CGD projects.

After the initial auction rounds between 2008 and 2017 failed to evoke the desired response from prospective investors, the  country’s oil regulator, Petroleum and Natural Gas Regulatory Board (PNGRB)  modified the bidding parameters for obtaining a license to retail CNG and piped cooking gas in Indian cities. Following this welcome move which led to a more balanced allocation of risks and rewards, the last two rounds of bidding fetched a very strong investor response.

With the completion of the latest (tenth) round of bidding in February 2019, the CGD network of suppliers is expected to be able to reach and serve up to 70% of the Indian population in just the next couple of years. The 11th round of bidding is expected to be announced soon. Exciting developments are in store for the CGD sector over the coming years!

Roads and Highways

In the past, a significant number of Build-Operate-Transfer (BOT) road projects witnessed delays in execution mainly due to delays in handing over the requisite Rights-of-Way (RoW) to developers. Developers suffered due to forced resource idling and cost and time overruns, and many of them ended up in disputes with National Highway Authority of India (NHAI) . During FY19, the NHAI awarded only 2,222 km of road projects to developers, a steep decline from 7,397 km awarded during the previous financial year.

However, the development of roads and highways is likely to witness accelerated growth with an increased level of estimated investments to be made by both state and central governments. The cumulative state level spend has always been historically higher than the central government spend on national highways. However, this has not drawn much attention due to lower number of PPP projects in state-funded projects, a wide scattered geographical coverage of road development, and a smaller-value projects usually undertaken by local contractors. With the introduction of Bharatmala Pariyojana, the largest centrally sponsored and funded road development programme after the National Highways Development Project (NHDP), the spend on highways development may see a considerable rise in the near future.  The estimated funds requirement for the development of national highways under the new programme is about Rs 6.92 lakh crore up to FY2022. At the same time, states spend on roads and highways is also estimated to increase by over 20% to Rs. 1.43 lakh crores. Maharashtra and Uttar Pradesh are the leading states making impressive forays in this sector.   Work on the Mumbai-Nagpur Super Expressway (Balasaheb Thackeray Mahamarg), which has received a full bank funding of Rs 28,000 crores, is already underway and expected to meet its target deadline of December 2020.

Other sectors

Major projects and plans have been announced in other infrastructure sectors as well. If successfully implemented, these projects are expected to redefine India’s infrastructure landscape in welcome ways. For instance, projects like ‘Indian Railways plan to allow private train operators on nearly 100 routes across the country’, ‘Allowing privatisation of coal mining etc’

While a few slow-moving sectors like Power need to be considerably revamped through regulatory and fiscal interventions, a sector like Ports and Logistics, which has received tremendous impetus through the introduction of mega programmes like Sagarmala, would need to be monitored and evaluated periodically. Corrective actions will also be needed from time to time.

As infrastructure development is an evolutionary process and requires an ‘integrated’ approach, the key to its success lies in continuously monitoring the development mechanisms that are already in place and taking timely actions to eliminate anomalies or outliers within them.  Proactive development strategies will definitely go a long way towards gradually moving India to the elite club of countries with the best investor-friendly infrastructure  in place.

Author Details:
Drumil Patel,
Traffic Analyst

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2 Comments

  1. A nice article. Infrastructure development is need of India. With private participation many projects can be undertaken. However , major hurdles in such large infrastructure projects is timely completion. With large private investment involved in such projects , delay causes
    increased IDC , cost escalation and ultimately failing of financial
    model. Most of the PPP projects which are operational are debt laden , disruptions of any nature affects revenue earnings. Many such projects has caused burden to lenders . We need to analyse these projects and avoid such failures in future .

    1. Dear Sanjay,
      Good afternoon. We note your comments. Timely completion is never an aspect which is given importance on any project by most of the stakeholders. It is a fact that cost savings are the maximum if projects are completed on time. With timely completion one avoids equipment and resource costs, insurance extension costs, IDC increase, other cost escalations etc. Further, timely completion boosts industry confidence, timely start of debt payment etc. I note your statement to analyse such failures and we are open to a discussion on the same. Thank you.

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