Roadblocks to infrastructure may deter growth: S&P

Inadequate infrastructure in India is a major roadblock to the country's target of achieving a 9.0 per cent to 9.5 per cent annual growth in 2012-2017, says a new S&P's Ratings Services's report, Can India's Developing Infrastructure Keep Pace With Economic Growth?.

The report looks at the key factors hindering the development of infrastructure in the country.

"An immediate consequence of increasing urbanisation in India (BBB-/Stable/A-3) in recent years has been manifold growth in demand for infrastructure," says Standard & Poor's credit analyst Rajiv Vishwanathan.

Vishwanathan explains, "Such demand supports our stable outlook for the sector," said. "We expect the demand to keep increasing in step with growth in the Indian economy. The country's power deficit is fuelling demand for energy projects, while rapid industrialisation and urbanisation are creating an urgent need for efficient road and rail connectivity and other improvements in infrastructure."

The Indian government has stepped up infrastructure spending in recent years. Nevertheless, the slow pace of reforms and a lack of long-term funding options constrain the sector's growth.

"We believe reforms to create a robust framework with transparent policies for project execution and funding will be critical to keep up the pace of infrastructure development in India," adds Vishwanathan. "Constraints in securing clearances, land rights, and long-term funding could cause companies to fall short of their targets."

The Twelfth 5-year plan focuses on removing some of these roadblocks and creating a sustainable framework for private-sector participation.

Nevertheless, the fate of the infrastructure sector over the next few years will depend on the ability of India's leaders to execute these plans.