Abstract
India’s Infrastructure Output Index, a measure of output growth from six
industries related to
infrastructure production, has shown resilience thus
far in 2009 and according to the latest available data
from June 2009,
production increased by 6.5% year-on-year (y-o-y), the strongest month yet.
Our
forecasts are more bullish this quarter for 2009. Three factors
influence the upward revision:
- The latest infrastructure data
- The
re-election of the United Progressive Alliance party, which assures a level of
policy
continuity in infrastructure investment policy
- The 2009/2010
budget announcements
In BMI’s Q409 India Infrastructure Report, we
forecast that India’s construction sector will grow, in real
terms,
at a rate of 2.6% y-o-y in 2009. This still remains a historically low figure
for India, but growth is
forecast to resume strongly in 2010, when we
forecast real growth of 9.4%.
Infrastructure was the focal point of the
new budget. A combination of higher government funding and
public private
partnerships (PPPs) will drive new investments in infrastructure projects. The
main goal
behind the provisions for infrastructure is increasing liquidity
in the market, which in turn will sustain
mega-projects in power, gas,
highways and railways. For the transport sector, funding earmarked for the
national highways development program increased by 23% compared with the
previous budget, while
funding for railways increased by close to 45%. In
the power sector, allocations for the power
development program increased
by 160%. Finally, the project to create a national system of natural gas
pipeline corridors will see a blueprint developed within the new fiscal year.
Even though infrastructure
got the lion’s share of attention in the
budget, Reuters reports that domestic infrastructure players sought
more
clarity over the allocation of earmarked funds.
India ranks 10th out of
the 14 countries rated in our Project Finance Ratings for the Asia Pacific
region.
The country’s particularly low score in contract
enforceability and market orientation drags its total
project finance
score down. In addition, finds itself in fifth place this quarter owing to
South Korea’s fall
from the top of the table; India’s score
remains the same this quarter. The country' s weak points lie in the
limited expertise of the domestic sector which, with the possible exception of
companies such as
Gammon, GMR Infrastructure and Larsen & Tourbo, cannot
meet the demands of the mega-projects
the government is seeking to
implement in the transport and energy sectors.
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