India's infrastructure deficit too large, will take time to be eliminated, says global rating agency S&P

S&P said the infrastructure sector has a high correlation with the overall economic environment. Macroeconomic roadblocks could strain the government's budget or reduce project returns for the private sector.

Press Trust of India July 30, 2018 13:45:35 IST
India's infrastructure deficit too large, will take time to be eliminated, says global rating agency S&P

New Delhi: S&P Global Ratings on Monday said India's infrastructure deficit is "too large" and the country still has a long way to go before it can close the sizable deficit between supply and demand.

"India's infrastructure deficit is simply too large to eliminate any time soon. Infrastructure takes time to build, and perhaps more so in India than for many other countries," S&P Global Ratings credit analyst Abhishek Dangra said.

The Indian government estimates infrastructure investment of $4.5 trillion will be needed through 2040, it said.

In an article titled 'India's Infrastructure Marathon: Why Steady Growth Can't Close The Supply Gap', S&P said India is making progress at scaling up its infrastructure, but still has a long way to go before it can close the sizable deficit between supply and demand.

"Project delays and cost overruns are attributable to complex land acquisitions and environmental issues. And in all democracies, societal considerations play a part, too," S&P said.

Indias infrastructure deficit too large will take time to be eliminated says global rating agency SP

Representational image. Reuters.

The country's progress at scaling up its infrastructure is shown in its decreasing power deficits, high passenger growth for airports, rising renewable capacity, and large metro train projects in progress. The government is leading the buildup in view of growing urbanisation, said the US-based rating agency.

"We believe the power sector is moving towards equilibrium in demand and supply from a deficit situation. However, fortunes will vary for thermal and renewables," Dangra said.

"No more new thermal power capacity is required until 2027, other than for projects already under construction; while renewables will continue their strong growth based on competitive tariffs," he added

The report says that capital expenditure (capex) will remain high for Indian infrastructure players across sectors. However, leverage trends vary.

"Rated utilities will likely maintain elevated capex, but the commissioning of new capacities and regulated returns on investment should increase earnings. As a result, we expect the segment to deleverage," it added.

S&P said the infrastructure sector has a high correlation with the overall economic environment. Macroeconomic roadblocks could strain the government's budget or reduce project returns for the private sector.

These risks include currency weakness, global trade protectionism, and rising inflationary strains that could push up interest rates. Elections scheduled for 2019 could also fuel political and policy uncertainty, S&P said.

"The intensity and duration of macro shocks will be key to their overall impact. We still believe that India's economic growth opportunities and the viability of projects should continue to attract capital," Dangra noted.

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