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Investment projects attracted by state in transport services sector facing time & cost overruns

The state of Telangana needs to intensify focus on ease of doing business thereby adhering to the principle of ‘minimum government, maximum governance,’ to become top investment hub thereby promoting more efficient and effective business practices across the state, apex industry body ASSOCHAM said today.

“Telangana should make efforts to ease the process of doing business for all categories of industries with special focus on small and medium enterprises that hold potential to create more employment,” said Mr D.S. Rawat, secretary general of The Associated Chambers of Commerce and Industry of India (ASSOCHAM) while releasing a study titled ‘Analysis of infrastructure investment in India,’ along with chamber’s Telangana Development Council chairman, Mr Srikanth Badiga at a press conference held in Hyderabad.

States across India had attracted total investments worth over Rs 53 lakh crore in different categories of infrastructure sector – transport services (71 per cent share), miscellaneous services like storage & distribution, health, education, recreational services and others (13 per cent), communication services (5 per cent), wholesale and retail trading (5 per cent), information technology (4 per cent), hotels and tourism (2 per cent).

Public sector accounted for highest share of 59 per cent in the total investments attracted by infrastructure sector, this is worrisome as India needs to look for more private sector participation in perking up infrastructure across the country, but it is seen that over the years reliance on public sources have increased.

“So far public investments have been the dominant form of infrastructure financing in India, but this is expected to change as large deficits and other commitments together with social obligations will constrain government’s financial flexibility, thus there will be a greater need to mobilise private sector capital that can be invested into infrastructure,” noted the study.

At the state level, public sector investment shows that in 2015 public sources had highest share of over 95 per cent in investments attracted by Chhattisgarh followed by Bihar (92 per cent), Uttarakhand (87 per cent), Himachal Pradesh (80 per cent) and Madhya Pradesh (77 per cent) amid top five states in terms of public investments.

While on an average, public sector sources accounted for over 59 per cent share in terms of investments attracted by infrastructure sector across India. Though in West Bengal (59 per cent), Tamil Nadu (58 per cent), Odisha (50 per cent), Uttar Pradesh (47 per cent), Gujarat (27 per cent) and Haryana (10 per cent) public investments’ share was below that of the country’s average share thereby implying that these six states would be leading in terms of private sector’s contribution to infrastructure sector.

While the total investments attracted by infrastructure sector across India have increased at a compounded annual growth rate (CAGR) of over 10 per cent between 2010-2015 thereby increasing from over Rs 32 lakh crore to over Rs 53 lakh crore.

Investments attracted by transport services sector have increased at maximum growth of over 13 per cent followed  by miscellaneous services (6.5 per cent), communication (5 per cent), wholesale and retail (two per cent), hotels and tourism (two per cent) and IT (one per cent).

Infrastructure investment attracted by transport services sector:

“Transport services have garnered highest share of over 71 per cent in terms of investments worth over Rs 53 lakh crore attracted by infrastructure sector across the country as of 2015 followed by miscellaneous services (13 per cent), communication (five per cent), wholesale and retail trading (five per cent), information technology (four per cent) and hotels & tourism (two per cent),” highlighted the study.

However, investments attracted by the transport services sector have registered steep cost escalation of 47 per cent thereby exceeding the actual cost of projects by a whopping Rs five lakh crore, besides these projects are also facing an average delay of over 44 months.

Investment projects attracted by Telangana in transport services sector have registered highest cost escalation rate of about 89 per cent and are facing delay of over 51 months as of 2015, noted the study prepared by The ASSOCHAM Economic Research Bureau (AERB).

“It is highly imperative for the government of Telangana to perk up transportation, communication, water and energy networks across the state to promote accessibility, quality of infrastructure and attract domestic firms and global investors,” said Mr Rawat.

Punjab (65 per cent), Jharkhand (59 per cent), West Bengal (58 per cent) and Gujarat (56 per cent) are other among top five states to have recorded high cost escalation rate in delayed transport services investment projects.

Infrastructure investments’ scenario in Telangana:

Telangana has recorded a meagre two per cent share in investments attracted by infrastructure sector from both public and private sources across India as of 2015 and there has been literally no change in its share in 2010.

It also registered 10.2 per cent CAGR in investments attracted by infrastructure sector during the course of past five years which is similar to the national average growth rate in this regard.

Telangana recorded third highest growth rate of over 36 per cent after Chhattisgarh (44 per cent) and Himachal Pradesh (38 per cent) in investments made by the public sources in infrastructure sector across India.

“While in terms of investments made by the private sector in infrastructure sector in India, Telangana had seen a negative growth of about five per cent, as such the state needs to mobilise private sector capital that can be invested into infrastructure,” suggested the ASSOCHAM study.

Besides, the state recorded under implementation rate of about 83 per cent which is way ahead than national under implementation rate of 58 per cent, this implies that most of the infrastructure projects in Telangana and across India are still in the process and are yet to be completed.

“This does not augur well for both the state and the country as actual benefits of an investment are only derived upon completion,” the study asserted.

Suggestions:

In its study, ASSOCHAM has suggested various measures like reducing delay in creating businesses, obtaining approvals, enforcing contracts; providing sufficient legal protection for investors; ensuring more transparent and predictable government decision making thereby minimising political and regulatory risks.

Co-ordination between government agencies together with a single window clearance system should be implemented with specific guidelines for time bound approvals. Besides, land acquisition and environment clearances continue to remain critical concerns for infrastructure developers as such these issues should be addressed proactively to balance the interests of all stakeholders.

There is also an urgent need to fill-up the skills related gap in handling infrastructure projects and the government should create a skill ecosystem in partnership with private players with a view to formalise professional training for project managers, suggested ASSOCHAM.

It also added that there is a need to improve depth and liquidity of corporate bond market to provide additional source of funding for infrastructure companies.

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