Why Indian Infrastructure not soaring?

Recently published McKinsey Report on Indian Infrastructure in India states that the bottlenecks in awarding and executing Infrastructure projects in India could result into a huge loss up to $ 200 billion in Gross Domestic product in the next nine years (i.e. by 2017)

In the previous post “Boost Infrastructure to boost Indian Logistics” we had written that the agencies are not being able to execute the infrastructure project within the timeline. Reasons may vary but one thing can be said for sure that the lack of participation of the private players in the Infra projects planned by the government is one of the main reasons for the bottlenecks in implementation. McKinsey states that the major reason for this bottleneck is ‘problems with the land acquisitions’ but there are many areas where land acquisitions not required but the problem remains the same.

Government should be willing to reinforce Public-Private-Partnership model so as to give infra a boost particularly in the implementation part. However, in the budget 2009-2010, the Finance Minister Mr Pranab Mukharjee has stated that the Government would need to increase the investment and attract private investment in the sector. This should be up to 9 percent of the Indian GDP. He has also said that for the removal of the bottlenecks for speedy implementation of infrastructure projects to ensure that sufficient funds are made available for this sector, the government would try to attract private players for the implementation of the wide range of infrastructure sector like airports, ports, roads and even in railways through public private partnerships (PPP).

Lack of Investment in the sector is also a major concern. A study by a private agency published in January this year stated that the liquidity crunch and global financial crisis has dampened fresh investment announcements by domestic business leaders in the sector, as about $500 billion is required for financing infrastructure projects during the 11th Plan period. Although the finance minister has said that ensuring better finances, the Government has decided that IIFCL will refinance 60% of commercial bank loans for PPP projects in critical sectors, there is a growing need of strong participation of private players for the investment in Indian Infrastructure sector.

The sector is the base of many businesses and it needs to be improved by a collaborative approach by the government, private infrastructure companies, and Investment organizations.