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That’s what infrastructure projects are asking as funding dries up. Niranjan Mudholkar takes a hard look at the sector’s behaviour in the wake of the ongoing global slowdown

The rising demand for infrastructure presents enormous opportunities and challenges in the form of policies, manpower, planning, execution and, of course, funding.

Funding, particularly, is interlinked with all aspects of a project. Infrastructure development is an ongoing process of any developed country. But going by the current financial doldrums the global economy is in, will any of India’s dream infrastructure projects take off?

Although the Finance Ministry and Reserve Bank of India (RBI) have taken measures to alleviate the fiscal problem, it is for the infrastructure sector that a panacea is needed.

In April this year, the Union finance minister P Chidambaram was addressing a session on infrastructure, growth and inflation. He had then (almost prophetically) disclosed the government’s plan of working at maintaining the growth momentum and controlling inflation in an age of financial turbulence.

The same session had seen Montek Singh Ahluwalia, deputy chairman, Planning Commission, praising the government’s efforts towards ensuring adequate long-term rupee debt finance for infrastructure projects. His remarks have an uncanny relevance in the context of the ongoing economic predicament.

Ahluwalia had pointed out the government’s significant agenda for infrastructure so that investments made in this sector could play a counter-cyclical role to offset any impact of an economic slowdown.

“There has been a degree of serious neglect over the last 15 to 20 years and any efforts to improve this situation would  take a good 10 years to show results. But a beginning had been made,” Ahluwalia had said.

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The government’s decision to raise the overseas borrowing limit through External Commercial Borrowings (ECB) by five times for infrastructure companies is quite in line with Ahluwalia’s speech six months ago.

This is likely to open up easier access to long-term debt for Indian infrastructure firms in the international market. Under the new guidelines, Indian infrastructure companies can borrow up to US$500 million (Rs260 crore) from overseas markets for domestic projects.

After a recent review last month, it has been decided that infrastructure also come to involve mining, exploration and refineries in the country, so as to expand the purpose of ECB.

The new infrastructure sector in the ECB policy will have (i) power, (ii) telecommunications, (iii) railways, (iv) roads (including bridges)(v) sea port and airport (vi) industrial parks (vii) urban infrastructure (water supply, sanitation and sewage projects) and (viii) mining, exploration and refining.

There will be no change in the other aspects of ECB policy such as eligible borrower, recognised lender, end-use of foreign currency expenditure for import of capital goods and overseas investments, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements.

These amendments will come into force on the date of Notification of Regulations/directions issued by the RBI in this regard under the Foreign Exchange Management Act, 1999.

Although overseas finance will come on costlier terms, it augurs well for an industry that’s going through a liquidity crunch.

Thankfully, experts do not expect the ongoing financial crisis and the global slowdown to have a major impact on the overall infrastructure developments in the country, except may be on Special Economic Zones (SEZs). It’s good news because if India is to bridge the gap between being a developing country and coming closer to a developed nation, there’s no substitute for infrastructure development.

The government does realise the significance of developing urban infrastructure.

“The process of urbanisation, a global phenomenon that has gained momentum in the latter half of last century, is irreversible. In India only 30% of the population lives in urban areas as against the global average of 50% and so there is a greater potential for the process to continue. The government is sensitive to the need of creating urban infrastructure, reflected in the Jawaharlal Nehru National Urban Renewal Mission (JNNURM),” says Union urban development minister S. Jaipal Reddy at the Confederation of Indian Industry’s (CII) infrastructure summit, Suminfra 2008. In the last four years, the government has cleared 330 projects in 53 cities. A recent estimate put the cost for restructuring and expanding the country’s urban infrastructure at US$56 billion (Rs29,180 crore) over the next ten years. The estimate has doubled since last taken in 2005.