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The Indian government is has embarked on a major infrastructure push. High economic growth depends on it. Programmes like Make in India won't take off unless it is backed up by the necessary physical infrastructure. The government has its task cut out. The number of stalled projects remains high. The bureaucracy is slow in giving clearances. Financing is also a challenge. But at least in one sector, things seem to be on the mend.
The government stated recently that all issues pertaining to highway projects would be resolved soon. Nineteen major highway projects remain stuck due to various issues. These include lack of equity, paucity of funds, and cost escalation with bankers among others. Their total project cost is about Rs 400 billion.
As per an article in the Business Standard, the issues hampering five to six projects have almost been resolved. However, the rest will take longer. According to the government, the situation has improved tremendously over the last one year or so. From a situation where contracts were not receiving even a single tender, major highway contracts now attract multiple bids.
The government has infused a lot of liquidity in to the sector. It has also worked proactively with the RBI to ensure that the interests of banks are protected. Procedures have been simplified. A new hybrid-annuity model has also been developed.
The central government has also asked state governments to prepare Detailed Projects Reports (DPRs) to speed up the pace of road construction. The government is targeting an increase from the existing 18 Km per day to 100 Km per day.
This is heartening news indeed. However, as always, execution will be the key. The government's efforts are in the right direction. We believe, it could take a few more quarters before these measures start reflecting in corporate earnings. Thus, investors should not get carried away while considering an investment in infra stocks. If history is a guide, overpaying for such stocks is a recipe for disaster.
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