India infrastructure output growth slows to three-year low in 2017/18

By Manoj Kumar

NEW DELHI (Reuters) - India's infrastructure growth slowed to a three-year low of 4.2 percent in the fiscal year ending in March, indicating Prime Minister Narendra Modi faces a tough challenge to boost investment ahead of general elections due early next year.

Annual output growth was 4.2 percent during the 2017/18 fiscal year that ended in March, lower than 4.8 percent in the previous year, and dragged down by slower growth in the production of coal, steel and electricity, according to data released on Tuesday by the Ministry of Commerce and Industry.

Modi, who is expected to seek a second five-year term next year, has eased several rules and pumped billion of dollars of state funds into building roads, ports, and airports to support economic growth and create jobs.

India completed on Sunday the electrification of all its villages 12 days ahead of a deadline set by Modi, which could give the ruling party a boost ahead of a general election in 2019.

Analysts, however, say higher borrowing costs and delays in official clearances for projects have hit private investments.

Some 356 infrastructure projects, each costing 1.5 billion rupees or more, had been delayed by up to five years, leading to a total cost overrun of 2.19 trillion rupees ($32.9 billion), according to government estimates.

Infrastructure output, which comprises eight sectors such as coal, crude oil, natural gas, steel, cement and electricity, accounts for nearly 40 percent of India's industrial output.

Steel output growth slowed to 5.6 percent in the year ending in March from 10.7 percent in the previous year. Cement output was up 6.3 percent in same period compared to a 1.2 percent fall, indicating a pick up in construction activity.

In March, infrastructure growth slowed to a three-month low of 4.1 percent from a year ago, government data showed.

Asia's third-largest economy has been held back for years by a shortage of energy sources such as electricity, coal and transport fuel, leaving industries to cope with blackouts and hospitals to rely on diesel-run generators as a back-up power supply.

The government plans to spend 5.97 trillion rupees ($89.7 billion) on infrastructure in 2018/19 fiscal year, more than three times what was allocated in 2014/15.

India's economy is expected to grow over 7 percent in current fiscal year beginning in April, up from an estimated 6.6 pct in the previous year.

($1 = 66.5000 Indian rupees)

(Reporting by Manoj Kumar; Editing by Darren Schuettler)