July 2012

Industry

Challenges facing India’s Infrastructure Sector – Part II

In my last post, I had written about the challenges faced by infrastructure sector in India. If we were to look into the reasons behind the challenges in India’s Infrastructure sector, we see that the problems can be broadly categorized into structural or procedural in nature. Structural reasons: Faulty incentives: Government organizations as well as the concessionaire are wrongly incentivized while implementing the infrastructural projects. Government contracts are generally awarded on the basis of lowest price and this encourages private players to undercut each other in prices for winning the contracts, thus resulting in poor quality bids and shifts the focus from long term viability of the project to short term gains, while transferring the risk to debt owners or the tax-payers. Oligopoly of project proponents:  Infrastructure projects require very high capital contribution and bank funding. Since India is still young in terms of numbers and complexity of infrastructure projects executed, at present we find only a handful of companies bidding and being awarded with projects in the country leading to a situation of “managed competition” where projects theoretically can be “distributed or shared”. High cost of funding : High cost of borrowing both from bank loans and bonds, has off…

Industry

Public Private Participation in India – Issues & Challenges

Infrastructure development had been identified as a critical prerequisite for sustaining the growth momentum of the Indian economy. Given the huge infrastructure deficit that India is facing, government has increased the target for infrastructure outlay during the twelfth plan period (2012 – 2017) to one trillion dollars, about half of which is envisaged to come from the private sector, including an annual $30 billion in foreign direct investment (FDI) inflows. Attracting such astronomical sum of investments will require the government to create a conducive environment with robust institutions and improved governance standards to ensure consistency and predictability of returns for the investors and to mitigate the risks of financing. Ensuring improved governance standards has so far emerged as the main challenge in meeting the country’s infrastructure shortages. The infrastructure projects, though significant for the economic development, are highly capital intensive, require investments with a long time frame and hence are fraught with uncertainty. So Public Private Participation (PPP) are being seen as an efficient way to bridge the country’s infrastructure deficit, by engaging both the public and private sector and thereby distributing the associated risks.  PPP projects are basically implemented in Project Finance mode where the liabilities of the company…

Innovation

Invisible Innovation In India

Over the past few decades, India has become a global hub for back office services and software development’. This has created a common belief in the west that people from developing countries such as India are generally good as software developers. As Indians too, we often wonder that why as a country we have not been able to produce to produce world class innovations like a Google or an Apple so far. What is lacking in the country that holds back innovation? Dr Nirmalya Kumar, Professor of Marketing and Dr Phanish Puranam, Professor of Strategy at the London Business School say that a part of the answer lies in how we look at innovation.

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