Infrastructure presents opportunity, pitfalls

By Tony Munroe

MUMBAI (Reuters) - A decisive election result has spurred hopes for a kick-start to development of India's notoriously poor infrastructure, but investors should be selective and temper their expectations given the challenges of completing big-ticket projects in the country.

While progress has been made in recent years in improving India's roads, ports, railways, and airports, other parts of its infrastructure -- especially power -- remain woefully inadequate.

Even the capital New Delhi is subject to blackouts, with some suburbs in the dark for up to eight hours at a stretch.

"You're not going to see a great leap, Chinese-style," said Frank Hancock, managing director for advisory at Barclays in India. "It's going to be incremental but it's never going to be enough to satisfy everybody," he said.

Indian infrastructure investment equalled 6 percent of gross domestic product last year, compared with 8.5 percent in China, and hopes are high that the budget to be unveiled on July 6 will include commitments to speed infrastructure development.

But with a fiscal deficit headed beyond the targeted 5.5 percent of GDP for the year ending in March 2010, and competing demands from projects such as rural job schemes and campaign promises for the poor, finances are tight.

Bureaucratic roadblocks also remain, although industry players say the situation is improving.

"There are thousands of challenges, challenges in project implementation, funding them, getting the clearances. These have always been there," said Archana Hingorani, chief executive of private equity firm IL&FS Investment Managers, which along with Standard Chartered runs the $600 million Standard Chartered ILFS Asia Infrastructure Growth Fund.