CCI (Cabinet Committee on Investment): Game changer in infrastructure sector ?

CCI (Cabinet Committee on Investment): Game changer in infrastructure sector ?

There are two much talks about infrastructure reforms these days. In the article below I have tried to analyse the real situation of infrastructure projects in India and what steps government and CCI (Cabinet Committee on Investment) have taken to improve infrastructure investments (Figures quoted have been taken from websites of various regulatory bodies and news reports)

Couple of day’s back Mr. Srikant Kumar Jena (Minister of statistics and programme implementation) informed parlimelemt that at January 1, 2013, of the total 566 projects, 276 were delayed and the estimated cost of each of these projects is above Rs.1.50 bn. Among the 276 projects, delay in clearances relating to environment and forest were reported by the project implementing agencies in 43 projects, of which 8 were in railways sector, 10 were in coal sector, 15 were in  road transport and highways, 2 were in petroleum sector and 8 were in power sector .

Recently FICICI (Federation of Indian Chambers of Commerce and Industry) has also submitted a list of 14 manufacturing projects holding up investment of Rs. 1,278 bn for want of various clearances to the government. Of the stalled projects, steel sector which involved investments of Rs. 1,050 bn. Others fall in cement, petrochemical based products, paper, gems and jewellery, non-ferrous metal as of April this year. FICCI also claimed that if these projects gets cleared India's GDP growth could rise by one percentage point.

These stalled projects not only raise non-performing assets of banks but also the incremental capital-output ratio (ICOR1) in the country. In last two years India’s ICOR was close to 5 and this was one of the reasons found for a decade-low growth of only 5%. Higher ICOR simply means investment capital accumulated in projects is not yielding appropriate production

There are over 100 projects, each involving investment of Rs 10.00 bn or more, which are held up because of some reason or the other. In last few months government has shown some intent of clearing these stalled projects by setting up a CCI (Cabinet Committee on Investment) to accord approval to mega projects worth over Rs 10.00 bn. CCI will seek to remove investment bottlenecks and drive growth, this CCI panel is headed by the Prime Minister and have ministers in charge of infrastructure sectors as its members. Of the total stalled projects in the country worth Rs. 7,000 bn, the committee has taken steps to push the evolvement of projects worth 1,500 bn

In oil and gas sector, the ministry of Defence imposed stringent conditions like asking companies not to locate any pipelines or structures on sea surface in the blocks cleared for exploration and production activities. Subsea/submerged permanent structures, if any, were to be located more than 100 metres below sea surface or outside the Defence Research and Development Organisation (DRDO)/Indian Air Force (IAF) danger zone area (on sea surface) or Naval exercise areas. The oil industry saw these conditions as impractical and after discussions with CCI, the conditions have been substantially relaxed .

In total, CCI had to consider clearances for 40 oil and natural gas blocks, worth Rs 500 billion. In March 2013 it cleared 5 blocks and in April 2013 it cleared 25 blocks for oil and gas activities (out of total 31 oil blocks which came for review in April) . Nine blocks were cleared without any conditions and 16 blocks were cleared with relaxed conditions. Reliance Industries-BP combine 13 blocks, Govt owned ONGC 15 blocks, Santos of Australia 2 blocks and 1 block of Cairn India-led consortium.

CCI also reviewed the status of 20 power projects, each with investment of Rs. 10 bn or more, which were pending for different types of approvals and clearances with a view to expediting decisions on approvals and clearances. In the last meeting CCI cleared 13 power projects, freeing up stalled investment of around Rs 330 bn. These 13 projects include 10 transmission, one hydro and two thermal projects.

Though measures taken by CCI are big step forward but more work needs to be done and government has to ensure that there is speedy execution of these projects if India has to grow with a GDP growth rate of 8.0%.  We also need new initiatives including like rigorous project appraisal, e- monitoring system, fixing of responsibility for time and cost overruns and regular review of the infrastructure projects by the concerned administrative ministries. For CCI to be a true game changer - it has to cut red tape, renew investor confidence and ease availability of funds 

1.    ICOR is a metric that assesses the marginal amount of investment capital necessary for an entity to generate the next unit of production. Overall, a higher ICOR value is not preferred because it indicates that the entity's production is inefficient. The measure is used predominantly in determining a country's level of production efficiency.

          K- Capital stock,Y- output (GDP), I- net investment

ICOR= ((I/Y)/(delta Y/ Y)) or (delta K/delta Y). According to this formula the incremental capital output ratio can be computed by dividing the investment share in GDP by the rate of growth of GDP.