The company set up by the government to fund core sector projects has sanctioned loans for only three projects so far in the current financial year. The twin bane of high interest rates and escalating input costs has begun to slow down infrastructure development and fewer project proposals are coming up for finance sanctions.
In the whole of last year, Indian Infrastructure Finance Company (IIFC) sanctioned finan- ce for 32 projects. It, however, hopes that the momentum will pick up later this year when more road projects are sanctioned.
“There is a slight slowdown. The inflow of fresh proposals is less because interest rates are high,” said S S Kohli, chairman and managing director of IIFC. The amount lent to the three projects is about Rs 600 crore. Last year, about Rs 8,000 crore was lent to the 32 projects that came up for funds. There has been a 2-2.5 percentage point increa- se in interest rates to 11.5-12 per cent.
last year, financial institutions offered money at 9-9.5 per cent.
In the Economic Survey, the government estimated that the investment in physical infrastructure alone during the eleventh five-year plan would be Rs 20,02,000 crore (or $500 billion). This would require a debt of Rs 9,96,000 crore. In 2008-09, the projected investment is more than Rs 3,22,000 crore.
In an interaction between finance minister P Chidambaram and industry captains on Tuesday, K V Kamath, ICICI Bank chairman who also represents industry through the Confederation of Indian Industry, expressed fears over the impact of high costs of both inputs and money.
He said that though investments in the pipeline were intact, rising costs of inputs and funds,
together with signs of a demand slowdown, had affected fresh investment proposals.
He said banks had sufficient funds but the availability of long-term funds remained an issue.
D L Rawal, executive director of Canara Bank, told Financial Chronicle that new projects might wait for another three to six months to see how interest rates moved. Project formulation usually took time and might pick up in the second half.
“The trend will be known after September,” Rawal said. Canara Bank has given Rs 14,000 crore in loans to the infrastructure sector.
In his interaction with industry captains, Chidambaram agreed some projects could hold back due to high interest rates, but credit off-take across sectors continued to be strong.
According to Kohli, with the government pushing for more projects, the off-take for the infrastructure sector might pick up but project viability was dependent on input costs.
“We are examining the viability of a number of projects since input costs have increased. Prices of steel, bitumen and steel have escalated increasing the overall project cost,” he said.
Steel, cement and bitumen account for up to 40 per cent of construction costs in infrastructure projects like roads, power and airports.