Comment on “Infrastructure and Connectivity in India: Getting the Basics Right”

• Date: 01 July 2016
• DOI: http://doi.org/10.1111/aepr.12145
• Published date: 01 July 2016
• Author: Shuji Uchikawa

Comment on “Infrastructure and Connectivity

in India: Getting the Basics Right”

Shuji UCHIKAWA†

Senshu University

JEL codes: H54, G2, O18, R42, R48

In India, infrastructure facilities such as roads, railways, ports, power stations, and

information and communications technology (ICT) have not been developed sufficiently

to catch up with India’srapid economic growth. Inefficientinfrastructure has been pointed

out as being a supply-side bottleneck. India must improve both its hard and soft

infrastructure. The central government doubled its investment in the infrastructure sector

from $US 500 billion in the 11

th

Five Year Plan (2007–2008 to 2011–2012) to $USD 1

trillion in the 12

th

Five Year Plan (2012–2013 to 2016–2017). But the investment is not

enough to meet infrastructure financing. Public–private partnerships (PPP) were

encouraged to mobilize more savings from the private sector. Commercial banks and

non-banking financial companies (NBFCs)have been the two major source of non-budget

debt financing for infrastructure projects. The share of infrastructure in gross bank credit

rose from 6% in March 2007 to 11% in March 2011. However, banks face asset liability

mismatches because they finance long-term infrastructure loans through deposits of a

shorter maturity. Moreover, the share of gross non-performing loans (NPL) and

restructured standard advances to the infrastructure sector in total advances to the sector

increased from 5.1% in March2010 to 22.8% in March 2015. Banks are reluctant to extend

credit to theinfrastructure sector. The totalresources of NBFCs are limitedbecause they are

not deposit taking institutions. The private sector cannot depend on banks and NBFCs to

expand investment in infrastructure projects. Singh and Kathuria (2016) recommend a

strengthening of the bond market and mobilizing insurance and pension funds through

the bond market to finance private investment in infrastructure.

In India, PPP projectsfell in the 12

th

Five Year Plan period.Many projects have suffered

large time and cost overruns, and they have been unable to meet expectations regarding

transparency and accountability. Many large infrastructure companies have accumulated

debt. As the net debt of Indian infrastructure companies increased from 3 trillion rupees

in 2010 to over 6 trillionrupees in 2014, private investment in infrastructuredecreased from

over $US 70 billion to less than$US 20 billion during the same period (Wall StreetJournal

2015). While the Ministry of Road Transport and Highways has awarded contracts for

8000km of national highways in 2014–2015, only about 700 km was awarded on build-

operate-transfer (BOT) (Live Mint 2015). Infrastructure development through PPPs has

†Correspondence: Shuji Uchikawa, School of Economics, Senshu University, 2-1-1, Higashimita,

Tama-ku, Kawasaki-shi, Kanagawa 214-8580, Ja pan. E-mail: suchikawa@isc.senshu-u.ac.jp

doi: 10.1111/aepr.12145 Asian EconomicPolicy Review (2016) 11, 286–287

286 ©2016Japan Center for EconomicResearch

bs_bs_banner