Infrastructure investment needs to pickup: Official

Investment in infrastructure development needs to pickup for better asset creation and delivery of projects, a senior government official said Tuesday.

According to R.P. Singh, chairman, National Highways Authority of India (NHAI): "The infrastructure situation in the country is dismal; the pace of investment is sub-optimal and unless we come out of the subsidy regime and inject substantially more funds into capital expenditure for asset creation, the situation will not look up."

Singh who was speaking at the Federation of Indian Chambers of Commerce and Industry's (FICCI) India Infrastructure Summit 2014, attributed the perceived failure of public private partnership (PPP) projects for developing infrastructure projects to the failure of the people who handle such projects rather than the concept.

Singh underlined the need for a rational tolling policy so that the user is not charged arbitrarily, especially where the charge is disproportionately higher in relation to the distance actually travelled.

"Much of the problem on PPP projects is caused by aggressive bidding for projects, and tendency to pass on the risk to the government when the project becomes unviable," said Singh.

Singh's views were corroborated by Shipping Secretary Vishwapti Trivedi who said that PPP by itself was not a bad concept.

"If you have the money go for engineering, procurement and construction (EPC) contracts or else build roads through the PPP mode"," he said.

Recently, the government said that it will develop highways under the EPC (engineering, procurement and construction) rather than PPP mode.

The shift in policy is significant given the new government's focus on developing infrastructure.

The EPC entails that the contractor build the project by designing, installing and procuring the necessary labour and land to construct the infrastructure, either directly or by subcontracting.

However unlike PPP, the financing is done by the government and not by banks or private equity funds through issuing of sovereign bonds or taking financial guarantees for the project.

The highway sector currently contributes around 4.5 percent to the GDP and is responsible for job creation and has a multiplier effect on the economy. However, delays due to land acquisition, forest clearances, defence land handovers have stalled progress in the sector.

This has caused build up of project non-performing assets (NPAs) worth crores of rupees where banks have participated or helped in financial closure.

Industry estimates the cost of these projects which are worth Rs.60,000 crore to have escalated further.