2010: Bumpy year ahead for infra?

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2010: Bumpy year ahead for infra?

If interest rates go up at the end of this month, as is expected by many economists, one industry that says it will feel the immediate pinch is infrastructure. So what will 2010 hold for the infra sector?

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Excerpts from Your World at 10 on CNBC-TV18 Watch the full show » RELATED NEWS Experts discuss road ahead for Indian infrastructure ALSO READ See latest News about IRB Infra See previous management interviews See what other Experts & Brokerages are saying about IRB Infra Nifty BSE | NSE 31/05/12 Are Mutual Funds betting on Nifty?

If interest rates go up at the end of this month as is expected by many economists, one industry that says it will feel the immediate pinch is infrastructure. For a sector that's already plagued by problems like delays in project approvals from the government, it now also faces the prospect of higher interest cost and also higher input cost due to inflation.

In an interview with CNBC-TV18, Vinayak Chatterjee, Chairman of infrastructure services company, Feedback Ventures and VD Mhaiskar, CMD of IRB Infrastructure spoke about their outlook for the infrastructure sector in 2010.

Below is a verbatim transcript of the interview. Also watch the video.

Q: This is suppose to be the decade of infrastructure for India but this is also the first year of the decade and we will see a turn in the interest cycle and money become more expensive. We already were seeing project delays through the course of last year and the last decade. Is 2010 going to be a nice opening to this decade?

Chatterjee: As citizens of the country we have a choice of looking at the infrastructure sector either as a glass half full or a glass half empty. Let me attempt to look at it as half full first, which is that on the ground there has been a huge degree of action that India has not seen before. Two points, for example, in the road sector a lot of obstacles are very quickly getting remove to hit Mr Kamal Nath's dream of 20 km plus a day. That's going to happen in the coming year.

On the power front there is close to 100,000 megawatt (MW) under implementation and the current estimates are that in the 11th Plan period we are probably going to do about 48,000 MW, which is more than a 100% increase of 22,000 MW in the 10th Plan period and there are extensions of metro rail projects, there are new airports coming up.

So if you want to see the glass half full, the story is one with enormous potential and great times ahead of us across various infrastructure sectors. However, if you pause and look at the macros and this is where it would come to my piece on the glass half empty - it is that the target for the 11th Plan period was about USD 500 billion in infrastructure investments. This was supposed to be more than a 100% jump over USD 222 billion done in the 10th Plan period.

So doubling of USD 222 billion would have been USD 444 billion and the national target is USD 500 billion as per the 11th Plan period. But a very quick dipstick was done at Feedback Ventures, done by my colleagues where I have been involved, leads us to believe that as a midterm assessment of where we are, at midterm of 11th Plan, our feeling is that we are likely to be anywhere between USD 310-320 billion, which means it's a 60% achievement.

You can say that's a glass half empty in terms of the sheer target that we had set for ourselves as a country.

Q: I cannot imagine you being anything but optimistic since you operate in this sector but the question that Vinayak alluded to in the first half of his answer, is that some part of the glass is full but the part that is empty we are not able to move with adequate speed to be able to fill it up. We have always been a country with great potential. Do you think 2010 is the year we are going to pickup speed and through the course of this decade accelerate when it comes to adding to our infrastructure?

Mhaiskar: I agree with what Vinayak said that the half glass full is surely there and addressing the empty half will definitely be a challenge and with the government now chipping in and actually getting into an action mode and as Vinayak said lot of things on the road sector are being resolved on a very fast track basis and with that in action, we should be able to tackle the half glass empty very soon.

Q: Where do you think or what do you think the maximum potential will be for each one of these sectors because through the course of the last decade we have spoken of the benefits that the reforms envisaged in the Electricity Act 2003 were suppose to bring but we have seen very little of those reforms actually even be carried out?

Chatterjee: The worry is not on the generating side right now because - actually to correct your impression for example I know that the ultra mega that the Tatas are implementing in Mundra is ahead of schedule and there are 600 MW to 1,000 MW installations that are coming up in heartland India in Chhattisgarh, in Madhya Pradesh, in many places. So the 100,000 MW under implementation is a happy thought although as I did qualify the actually implementation is going to be less than the projected 78,000 MW but not to worry it will double 10th Plan.

But the real worry where I agree with you is that some of the key provisions of the Electricity Act that meant open access which would open up the power sector to free play in a private sense have actually not happened because not a single state has implemented the central Electricity Act's principles in spirit and in letter. So we actually have a problem there on the open access, we also have a serious problem on fuel linkage. The government of India must act together in the manner and way it is going to make fuel available to new power capacities.