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Infrastructure projects in credit crunch

The global economic crisis is threatening to delay several infrastructure projects by many months as developers struggle to raise capital to fund the projects, report Gaurav Choudhury and Samiran Saha.

business Updated: Oct 27, 2008 21:11 IST

The global economic crisis is threatening to delay several infrastructure projects by many months as developers struggle to raise capital to fund the projects.

A government report said 234 out of 515 central projects — each estimated to cost Rs100 crore and above — had been delayed.

According to the flash report on central sector projects released by the ministry of statistics and programme implementation, the delay is particularly serious in the power, railways and petroleum sectors where some projects have reported additional delays of more than a year.

Similarly, many of the National Highway Authority of India’s (NHAI) projects have run into roadblocks. “We had severe problems in completing some stretches of the golden quadrilateral projects as many of contractors who were awarded the bid were found wanting in several key parameters,” a NHAI official said.

Fresh bids for several stretches had to be invited pushing back the scheduled completion by many months.

The government has done several things to ease the credit crisis. Under the new norms, infrastructure companies can borrow up to $500 million in a year from overseas markets for spending in the home country. But a top executive of an infrastructure developing company said the measures might have come too late. “The overseas borrowing costs have increased significantly in the last few months,” he said. “Besides, funds availability in international banks has now become an issue that cannot be addressed.”

The infrastructure companies have also been hemmed by a hard domestic interest rate regime.

Analysts said the Reserve Bank of India (RBI) could ease lending norms for infrastructure projects.

“In the current global and local settings, the RBI should be putting more policy easing in place, because it has that flexibility and because the economy is screaming for it,” said Rajeev Malik of Macquarie Securities.

In the last two years, there has been a major rise in overseas borrowings largely because of growing gap between the domestic and international interest rates. India will require an estimated $500 billion to fund its infrastructure projects by 2010. The United Nations Conference on Trade and Development’s World Investment Report 2008 estimated India would face $140 billion deficit by 2010.