Is India's infra boom waning?

By Katya Naidu and Taapsi Ramchandani, CNBC-TV18

The sheen is coming off India's infrastructure boom. The number of bidders for projects are shrinking. Building India's infrastructure was seen as a booming sector not long ago, but with the global economic downturn infrastructure projects are losing their sheen.

For example- when Udaipur Airport Development Project was announced earlier this year, as many as 24 companies bid to build it! But experts say that many bidders may not show interest in the 35 other non-metro airport projects. Those include cities like Amritsar, Guwahati, Trivandrum, Lucknow, Goa, Madurai and Mangalore.

The reason is a slip in traffic growth due to hike in airfares. Last year, air traffic growth was as high as 25% but this year, it was revised downward to a mere 9%.

“If passenger growth reduces, it will have an affect on airport operations because a good portion of revenues comes from passengers,” said Isaac George, CFO, GVK.

Airlines are also reducing flights to uncommon routes, putting these projects in deeper trouble. Ditto with some power projects. Merchant power projects, where companies sell to private power purchasers, might also see a slowdown in demand.  Infrastructure projects are being hit due to various adversities.

Experts say that from now on, companies will bid at realistic tariffs and concession periods, keeping in mind larger profit margins and rising input costs. Earlier, there have been cases where small infrastructure companies have bid at thin margins, to expand their portfolio. But that will most likely change after a hike in interest rates where credit is an issue especially to small companies.