It is a truism that infrastructure is the backbone of growth. Production and distribution bottlenecks created by deficiencies in roads, railways, power, telecom, water supply and sewerage systems create a drag on growth in the long run. What is less appreciated though is that infrastructure investment itself is a source of growth through stimulating demand, particularly for steel, cement, labour and various construction-related services. One reason that India’s growth averaged 8 per cent in the last Five-Year Plan ended 2011-12 was because infrastructure investments doubled to over $500 billion in this period, almost 37 per cent of it coming from the private sector. The current India Slowdown Story is largely one of stalled infrastructure projects. While the Government has doubled targeted infrastructure investments for the current Plan ending 2016-17 to $1 trillion (with a private sector share of nearly 50 per cent), the ground realities are disturbing, with even existing projects getting derailed.
Bank loans provide a clue to the kind of problem we face. According to Reserve Bank of India Deputy Governor K. C. Chakrabarty, the share of infrastructure in total outstanding bank credit rose from 1.6 per cent to 13.4 per cent between March 2000 and March 2013. But of the Rs 786,045 crore of loans made to this sector, a staggering Rs 136,970 crore or 17.4 per cent have either turned bad or been restructured. This is almost twice the overall non-performing and restructured loan ratio for bank advances to all sectors, as data from the RBI’s 2012-13 Annual Report presented last week show. It points to two things. First, and obviously, the problem of bad debts is far more serious in infrastructure than other sectors. Second, a failure to resolve issues in infrastructure will not only jeopardise overall investment and growth, but threaten the viability of the banking system itself.
Fortunately, solutions are at hand. As Chakrabarty has rightly noted, a lack of finance has not constrained infrastructure development. Outstanding bank credit alone to the sector has expanded over 100 times in the last 13 years. If more than 50 per cent of projects are stuck at various levels of implementation, it is largely thanks to regulatory hurdles — such things as delays in environment/forest clearances, land acquisition, coal linkages and revision of user charges/tariffs. These lie wholly in the policy and administrative realm, issues only the Government can fix. There’s no better time to do this than now on a project-to-project basis. Resolving the infrastructure conundrum will make all the difference between sub-five and eight per cent-plus growth, not only for the future but even the present.