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Editor’s
Desk
The Growth Mantra
The verdict by the electorate has put the wheels of the economy
into motion. The new government is concerned about the portfolios
which pertain to infrastructure and has been keen to post
action-oriented, efficient, and progressive ministers. This
is a good beginning. The new government is also realising
the slip up in this area during past 18 months where road
projects have gone nowhere. Currently as per Dr Didar Singh,
Member (Finance), NHAI, projects worth Rs 60,000 crore are
up for implementation. “Of the 60 proposals that we
had floated, we received bids for only 22. The balance 38
and fresh 22 proposals are now set for the bidding process,”
he explained. The terms are more attractive as the returns
on these projects are better, he added.
Roads is just one such visible sector which is awaiting traction.
Others like railways, airports, ports have their defined path
which has been laid in the Eleventh Five Year Plan but all
are lagging behind due to inactivity during the latter half
of financial year 2008. But such is the latent demand that
projects are bagging business even before they have a chance
to be fully complete. Take the case of Dhamra Port, a 50:50
JV between Tata Steel and L&T, which has bagged 5 million
tonne of cargo from Tata Steel, although it is due to start
commercial operations only in 2010. The fact that it has draft
of 18 m, which can accommodate super cape-size vessels up
to 180,000 dead-weight tonnage (DWT) - compared to the Haldia
dock system managed by the Kolkata Port Trust which has been
struggling to maintain a 7 m draft since last year - has clinched
the deal in its favour. Neglect in timely dredging operations
have been cited as the cause of the latent demand. Further,
this creation of infrastructure leads to creation of more
infrastructure: the Dhamra Port Company is laying a 62 km
rail link from Dhamra to Bhadrak on the main Howrah-Chennai
line. Infrastructure is a continuous process and once the
road projects start rolling, so will all linkages.
The other big sector which led the bull rally at the bourses
until January last year - realty - has finally found its way
out of the woods. Qualified Institutional Placements (QIPs)
made by Unitech, Indiabulls and now being followed by Sobha
and HDIL, will see a lot of debt getting converted into equity,
thanks to the recent run up in the sensex following the infusion
of over Rs 5,000 crore by FIIs. But this will also help developers
to hold back the fall in their property prices as it gives
them more holding power. Further in a bid to improve liquidity,
the Securities and Exchange Board of India is considering
a proposal to exempt infrastructure companies from the current
rule that restrains parent companies from raising money through
public issue of debentures for funding group companies. This
may have its own set of corporate governance issues in time
to come and may prove to be counter-productive. If the objective
is to deepen the debt market, there are better and more sustainable
routes.
The charge at the bourses is already moving in favour of
infrastructure companies as funds from overseas and other
fund managers scour the horizon for value-based infrastructure
companies which have sustainable models and stellar reputations.
Most infrastructure companies do have political lineage and
patronage as their calling card. This aspect, which may seem
to be an advantage, will soon prove to be a liability as the
companies’ fortunes will swing with those of the politicians
who serve as their mascots.
Team Manmohan, the new cabinet, has its task cut out for it
which has been spelt by FM Pranab Mukherjee: Growth. To achieve
growth, infrastructure spending has to be sharply increased
by at least 3 per cent of GDP to 8 per cent. As per the reasons
cited in this column in November 2008, India has resumed its
position as a destination for funds in infrastructure projects
and now with a stable team at the Centre, we can gather momentum
without looking over our ‘left’ shoulder. It is
the right opportunity, right time!
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