(Updates with capital goods index in 11th paragraph. For more on India’s budget, see INEL <GO>.)
July 7 (Bloomberg) -- India began planning a second airport for Mumbai, its most populous city, when Bill Clinton was still U.S. president. Seventeen years later, bidding on the project has yet to start.
A river still meanders across the marshy land where as many as 60 million passengers a year are supposed to fly in and out of India’s main financial hub. The lack of progress on the project -- in Navi Mumbai, or New Mumbai -- illustrates the challenge Prime Minister Narendra Modi faces in fulfilling a campaign pledge to build more airports, roads and railroads.
Modi in May led his Bharatiya Janata Party to India’s first single-party majority since 1984, promising to kickstart public works after political gridlock stalled about $255 billion of projects. A slow land-buying process, environmental objections and high borrowing costs are among the impediments in improving a national infrastructure whose quality was ranked below Guatemala and Namibia in a World Economic Forum survey.
“The Navi Mumbai project is a disaster,” said Mark D. Martin, chief executive officer of Dubai-based Martin Consulting LLC, who advises airlines. “The development costs are going to be so high that no private party will want to invest.”
Finance Minister Arun Jaitley is expected to detail plans to boost public-works investment when he presents the new administration’s first budget on July 10. Delays in implementing federally funded projects including several railroads have pushed up costs by more than 1 trillion rupees ($16.7 billion), according to the Associated Chambers of Commerce and Industry of India, an industry lobby.
First proposed in 1997 and approved a decade later by India’s cabinet, Navi Mumbai International Airport was to be built on a 1,405-hectare (3,471 acres) site about 35 kilometers (22 miles) southeast of the existing international airport.
Planned as a public-private partnership to help Mumbai cope with the projected surge in air passengers to 119 million by 2031, the work involves diverting the Ulwe river that cuts across the land and building two east-west runways.
Cost projections have climbed to 145 billion rupees from about 87 billion rupees in 2010, and the estimated start date has been pushed back by at least four years. The first phase will be ready by December 2018, according to a June 17 e-mailed statement from the City and Industrial Development Corp. of Maharashtra, known as CIDCO, which will be a state-owned shareholder in the company that will build the airport.
Settlements have been reached with almost all the villages in the area to ensure smooth land acquisition, CIDCO Managing Director Sanjay Bhatia said in a statement June 17.
“I don’t know when the thing can be operational,” Civil Aviation Minister Ashok Gajapathi Raju said June 25. “I was in Mumbai and did an aerial survey. It’s a mushy land as of now.”
An index of 18 capital goods manufacturers has surged 24 percent since Modi’s electoral victory on May 16, outperforming the benchmark S&P BSE Sensex Index’s 7.9 percent increase. Larsen & Toubro Ltd., India’s biggest engineering company, has gained 22 percent and GVK Power & Infrastruture Ltd., operator of Mumbai’s airport, has climbed 29 percent in the period amid speculation the government will boost spending and accelerate approvals for roads, ports and power projects.
Modi’s challenges won’t be limited to constructing airports. He needs to spend about 17.6 trillion rupees by 2017 building roads, bridges, ports and railways, according to estimates of the Planning Commission of India.
As many as 19 port projects, some dating back to 2009, are in various stages of implementation, according to the shipping ministry’s website. To take advantage of the nation’s 7,517- kilometer coastline and 199 ports to boost exports, Modi’s government needs to ramp up work on those.
“India has lagged behind China and the rest of Asia in terms of infrastructure,” said Sam Mahtani, emerging markets director at London-based F&C Asset Management Plc, which oversees about $150 billion. “There has to be a major push on getting projects on track.”
Delays are holding back India’s global competitiveness, said Tony Tyler, director general of the International Air Transport Association, which represents 84 percent of global air traffic.
“Infrastructure issues persist — with high charges and capacity shortfalls in key markets such as Mumbai,” Tyler said in an e-mail.
About half the funds for boosting infrastructure has to come from the private sector in the form of debt and equity, according to Deloitte Touche Tohmatsu India Pvt. For ports and airports, private funding needs to be as much as 80 percent.
For that, Modi needs to reverse the current trend. Investment by private companies as a percentage of gross domestic product is estimated to have declined to 9.2 percent in the year ended March 2013, the lowest in at least nine years, according to data from the Ministry of Statistics and Programme Implementation.
The government is trying to get projects cleared more quickly. Environmental clearances will now be granted online, Minister of State for Environment Prakash Javadekar said in May.
“The kind of statements coming from Modi and the ministers he appointed gives the impression he’s serious,” Mahtani said. Even so, “it will probably take 10 to 15 years to reach acceptable levels of infrastructure,” he said.
--With assistance from Sunil Jagtiani in New Delhi.