India's progress toward closing infrastructure deficit could be at risk: S&P

SINGAPORE - India is making progress in scaling up its infrastructure, but still has a long way to go before it can close the sizable deficit between supply and demand, says S&P Global Ratings in a report released today.

"India's infrastructure deficit is simply too large to eliminate any time soon," said S&P Global Ratings credit analyst Abhishek Dangra.
 
"Infrastructure takes time to build, and perhaps more so in India than for many other countries."
 
The Indian Government estimates infrastructure investment of US$4.5 trillion will be needed through to 2040.
 
Project delays and cost overruns are attributable to complex land acquisitions and environmental issues, and, as in all democracies, societal considerations play a part, too.
 
India’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 report says, with the government leading the build-up in view of growing urbanisation.
 
"We believe the power sector is moving towards equilibrium in demand and supply from a deficit situation,” says Dangra. “However, fortunes will vary for thermal and renewables."
 
"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."
 
The report says that capital expenditure 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. Renewables will likely continue to incur significant growth capex and maintain weaker credit metrics, with an average ratio of funds from operations to debt of below 9%.”
 
S&P says India’s infrastructure sector has a high correlation with the overall economic environment, and that macro-economic 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.
 
"The intensity and duration of macro shocks will be key to their overall impact," said Dangra. "We still believe that India's economic growth opportunities and the viability of projects should continue to attract capital."
 
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