Infrastructure thrust: Execution matters

Wed, 11 Jun Pre-Open

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The last couple of years have seen the Indian economy grow at its slowest pace. And it's not because of the slowdown in the global economy. The Indian economy stood strong and resilient even in the financial crisis of 2008 that shook the very foundations of the global economy. The one thing that can be blamed for the slow down of the economic engine is lack of infrastructure growth. It was also one of the prime reasons for which the UPA government lost in the recently concluded general elections. However, there is one good thing that has resulted from this. That is, a pro reform Government with a clear majority at the centre.

At the core of the Government's agenda lies revival in infrastructure growth. Issues like environmental clearances, land acquisition and permissions from multiple state and central Government agencies have been a major roadblock for development projects. And the new Government plans to iron out these issues to fasten up project execution and avoid bureaucratic delays.

Over the next 10 years, it plans to execute a development program that is likely to use the Public Private Partnership (PPP) mechanism. Now this may not sound too convincing because the PPP model has been in place for quite a long time but has not delivered results. However, it would not be fair to completely write it off. Earlier, the model had not worked because of the issues mentioned above which the Modi Government is expected to take care of.

The population in India is ever growing. To support it and capitalize on the much talked about demographic dividend, we need to create more cities and facilitate urbanization. One thing that will be crucial here is transportation and connectivity. And the Government aims to take care of these by focusing on investment in and revamp of roadways and railways. Further, to facilitate trade and boost economy, the Government plans to develop world class ports.

The new Government has been making the right noises so far. However, while the intent seems good, the execution skills are yet to be tested. Despite this, the markets seem to be in a little hurry. The infrastructure theme has already caught on and one has been seeing the stock markets zooming. In such times, we believe investors should not get carried away and focus on the fundamentals and valuations of companies while taking investing decisions.