Infrastructure: Execution is the key - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Infrastructure: Execution is the key

Mar 5, 2003

During times of economic slowdown it is a widely observed phenomenon that the Government tries to increase itís spending on infrastructure activities in order to impart the much needed stimulus to the core industrial sectors like steel, cement, power and coal. In the current budget the Government has done just that. It has announced infrastructure projects worth nearly Rs 600 bn. These projects range from a wide variety of sectors like roads, airports, seaports, railways and convention centers. But what is noticeable here is that fact that a considerable amount of the funding requirement is to come from the participation of the private sector. This means less burden on the government finances and that the much needed infrastructure related spending can be implemented with out worsening the fiscal deficit situation further.

Among the projects announced, road projects are again the focus. The new road projects announced entail a length of nearly 10,000 Kms with an estimated cost of Rs 400 bn. An initiative of this magnitude comes after the ambitious Golden Quadrilateral and North-South and East-West corridor projects that were announced way back in October 1998. The outlay for these projects was Rs 540 bn.

Project Budgeted expenditure
(Rs bn)
New road project 400
Airport and seaport projects 110
Rail vikas project 80
Convention centers 10
Total 600

The highway projects, namely Golden Quadrilateral and North-South and East-West corridor, projects have been financed in part by the government, cess on diesel and petrol and multilateral lending agencies like the Asian Development Bank (ADB) and World Bank. Private participation has also help fund these projects considerably as private parties are being offered the option of building and operating these roads and in turn collecting a toll for the same.

The road projects announced in the recent budget, however, entail larger private participation and no announcement has been made regarding borrowing from the ADB or World Bank. The private players are expected to invest in building the roads and then earn by collecting toll for usage of these roads. The Government plans to fund the gap between the earnings of private parties and the expected revenues from each project. This could translate to the fact that the government could pay up to Rs 20 bn to compensate for the short fall in expected earnings. Additional cess on diesel will also be utilized to fund this project. Work on nearly 3,000 kms of roads is to be started in the first year itself.

Golden
Quadrilateral
North South & East West
Phase I & II
Port
connectivity
Others
Total Length in Km 5,846 7,300 363 653
% completed 20% 11% 15% 21%
% Under Implementation 78% 9% 31% 27%
Balance % to be awarded 2% 80% 54% 52%

What is significant here is the fact that these new road projects are exclusive of the already existing Golden Quadrilateral and North-South and East-West corridor projects. This would mean additional jobs. Road projects apart from stimulating demand, for industries like steel and cement (Read more for the impact on the cement industry) provide employment. This in turn helps improve consumption demand.

Judging by the progress of the Golden Quadrilateral and the corridor projects that have attractive private investments, the new road projects seem to be realistic to implement. However, implementation in time continues to be an issue. Already there are indications that the Golden Quadrilateral project may get delayed. Delays increase the cost of the project. The infrastructure projects initiated by the government have already helped a great deal to boost demand for commodities like steel and cement as well as coal. While the governmentís mind is in the right place a far as stimulating demand is concerned, the question is whether it will be able to meet its deadlines.


Equitymaster requests your view! Post a comment on "Infrastructure: Execution is the key". Click here!

  

More Views on News

BSE Sensex Surges 707 Points; BHARTI AIRTEL Among Top Gainers (Market Updates)

Sep 25, 2020 | Updated on Sep 25, 2020

The BSE Sensex Surged 707 Points; BHARTI AIRTEL Among Top Gainers. Find the latest update, special reports and news on all time high gainers of BSE Sensex at equitymaster.com.

Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

Jun 1, 2020

Is too much data hurting your quest for market beating returns?

Quantum Mutual Fund: Hum woh nahi hain (The Honest Truth)

Apr 29, 2020

Ajit Dayal on how the mutual fund industry robs you of your wealth.

This One Trigger Could Turnaround Yes Bank's Stock Price (The 5 Minute Wrapup)

Oct 16, 2019

If Yes Bank manages to do this, it could be the start of a much-needed turnaround for the bank.

Gold could Hit 40,000 Sooner Than Expected (Profit Hunter)

Aug 16, 2019

Domestic gold prices are firing on both engines now. Gold prices could touch 40,000 faster than you could imagine.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS