What do you see as the pros and cons of investing in Indian infrastructure at the current time?
SM: India, Asia’s third-largest economy, has slowed sharply due to a combination of factors including high interest rates, inflation, policy and regulatory delays, weak demand and a slowdown in exports. But recent data does point to signs of a turnaround, if not a revival.
However, in the current sluggish economic environment, there are fewer greenfield projects and a lack of sponsor/developer appetite for funding these projects. After at least a year of a conducive economic environment, it’s possible to visualise the return of interest from developers.
In an emerging economy that expects to see circa 5 percent GDP growth this fiscal (even though the IMF recently slashed this to 4.25 percent in 2013-14), the creation of world class infrastructure has been recognised as a key priority and a necessary condition for sustaining growth momentum.
The Indian economy is seeing green shoots of recovery and is expected to recover significantly by next year on account of a series of policy decisions taken by the government.
From the outside, it looks as if there are a lot of difficulties for investors. Is that a true picture or unfair in some ways?
SM: At the moment, it is critical that steps be taken to revive the flagging investment cycle. This is where the government can step in and help in jump-starting the capex (capital expenditure) cycle in the sector.
This can be done through various measures such as: awards of EPC (engineering, procurement, construction) contracts by government agencies and public sector entities; public sector undertakings (PSUs) with large cash surpluses should plan and implement capex programmes; government agencies should clear pending dues to infrastructure firms; and the implementation of the Financial Restructuring Package schemes for loss-making State Electricity Boards.
There are some issues that affect specific infrastructure sectors. For instance, in the power sector, the production, supply and logistics of coal, which is mostly state-controlled, needs to be improved. In the telecom sector, there are issues that surround the spectrum auction and there is a need to finalise merger and acquisitions guidelines to enable consolidation.
What has been done to try and create a better environment? And how successful have the initiatives been?
SM: Several initiatives have been taken by the government with varying degrees of success. An inter-ministerial committee, the Cabinet Committee for Investment, has fast-tracked 36 stalled infrastructure projects worth R1.9lakh crore.
Another initiative for the beleaguered energy sector is the financial restructuring package by the central government for the loss-making electricity distribution companies (the State Electricity Boards).
In June this year, the Cabinet Committee for Economic Affairs, in order to revive the roads sector, approved a proposal for facilitating substitution of the Concessionaire in the case of both ongoing and completed projects, to be effected by the lenders with the consent of NHAI. This kind of easy exit for developers will facilitate investment in the sector.
Where do you see the most opportunities over the next few years?
SM: There is enough of a pipeline of projects in the roads and energy sectors (particularly, the renewable energy sector). We would like to see other areas offering good assets, such as urban infrastructure, water, solid waste management and hospitals. These segments have huge potential in India.
How has the financing environment developed? Are there now more participants?
SM: The financing environment still has a long way to go. For this, an enabling environment needs to be created to facilitate infrastructure investment. The initiatives that have already been taken toward this end, and what remains to be done, have been highlighted in the above answers.