How India's Rich Are Plugging Power, Road Gaps: Andy Mukherjee
By Andy Mukherjee
Nov. 23 (Bloomberg) -- It's easy, perhaps too easy, to become pessimistic about India's deficient infrastructure.
Everything from potholed roads and clogged airports to frequent power blackouts and creaking urban transportation would appear to be daunting, if not intractable, shortcomings.
Sure, the challenges are humongous, and the pace of their resolution is slow. The highly indebted Indian government hasn't the wherewithal to make a decisive improvement, which is estimated to require additional spending equal to 3.4 percent of gross domestic product. That's almost three-quarters of what India is spending on transportation, power, water, irrigation, communications and storage capacity in a year.
The case for glumness is probably overstated.
Private enterprise is playing an increasingly important role. Inadequate public spending is still a huge constraint, yet domestic non-state companies are slowly taking the lead in allocating much-needed capital to some of India's most overlooked requirements.
A glance at the latest Forbes magazine list of 40 richest Indians should prove that point. Except for the ``knowledge- economy'' czars -- the computer-software and generic-drug exporters who are mostly sticking to what they know -- almost everyone else on that list is investing in infrastructure.
To cite a few examples:
-- Mukesh Ambani, the second-richest Indian after steel baron Lakshmi Mittal, is building a whole new port city near Mumbai. Ambani, the chairman of Reliance Industries Ltd., is also setting up a badly needed farm-to-store supply chain in agricultural commodities.
Billionaire Plans
-- Estranged younger brother Anil Ambani, No. 3 on the Forbes list, is building a 7,480 megawatt electricity plant in the northern state of Uttar Pradesh. If he can find the gas to fire his plant, he can bring cheer to a power-starved New Delhi. The younger Ambani is also partnering the city of Mumbai on the first phase of a $4 billion suburban railway system.
-- Three places below Anil Ambani on the wealth list is Sunil Mittal, the founder of India's largest mobile-phone service provider. Mittal may soon announce a tie-up with a global retailer. Like Mukesh Ambani, he has serious plans to create a robust food-supply system in the country.
-- Tulsi Tanti, the eighth-richest Indian, has made all his money in wind energy. As much as 45 percent of the 100,000 megawatts of power that India is expected to need in the next five years may be supplied by windmills, he says. Another Indian billionaire, Jaiprakash Gaur, has similar hopes from hydropower.
-- Grandhi Rao's GMR Infrastructure Ltd. is modernizing the New Delhi airport and constructing a new one in the southern city of Hyderabad. Rao is No. 18 on the Forbes list, just ahead of Baba Kalyani, whose Nandi Infrastructure Corridor Enterprises Ltd. is building a $500 million Bangalore-Mysore expressway that will ease the congestion in India's software capital.
Land and Politics
The government's biggest headache is acquiring land; Mukesh Ambani's plan to build a new city a third as big as Mumbai is already dogged by the protests of farmers who feel they are being compensated too little for their land.
For the developer, the political risk is also intimidating.
The Bangalore-Mysore corridor, approved in 1995, has been stuck in a political and legal quagmire.
The Indian Supreme Court recently threw out the objections of the Karnataka state government, giving the final go-ahead to India's first privately built expressway; the politicians may yet find a way to torpedo the project. Already, the state government has hit back by withdrawing a pollution clearance.
Setbacks such as these would have been very dispiriting 10 years ago. Now, they are being shrugged off.
The private sector in India is awash with money and has a huge appetite for risk. Infrastructure-related work is already so brisk that it's creating capacity bottlenecks for machinery suppliers, says Ved Prakash Chaturvedi, managing director of Tata Asset Management Ltd. in Mumbai.
Short of Turbines
Bharat Heavy Electricals Ltd., India's biggest maker of gas turbines and power transformers, had pending orders valued at 457 billion rupees ($10 billion) as of Sept. 30. That's triple its sales in the year ended March 31, 2006.
Supply-side bottlenecks, across a range of capital-goods businesses, may become a short-term impediment, especially if the economy continues to grow at about 8 percent, the pace at which it has expanded the past three years.
``An economy growing 8 percent annually becomes almost 1 1/2 times its original size in five years,'' Chaturvedi says. ``When this growth is domestic-demand-driven, as it is in India, the strain on infrastructure from the increase in the sheer number of transactions is stupendous.''
Capital Flows
To remove the temporary deficiencies in capacity, the Indian financial system, the brain of the economy, has to step in.
The better banks are reading the hunger for investment demand correctly. ICICI Bank Ltd., India's largest by market value, is raising a record $1 billion in yen loans.
Give it a few years. The private sector in India will build and operate substantial amounts of physical infrastructure. Quality public-sector projects will remain limited to rare successes such as Delhi Metro Rail Corp. because of the sheer paucity of management skills within the government.
Adequate power supply and tolerable transportation networks are within India's reach, and sooner than people realize. Yet the key is with India's entrepreneurs, not its government.
(Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Andy Mukherjee in Singapore at amukherjee@bloomberg.net .
Last Updated: November 22, 2006 13:56 EST
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