India’s big infrastructure push hinges on patching up its economic credibility

The biggest thing Indian infrastructure has built up is a reputation for unmanageable risk that is hard to model. With so much bad debt run up by past projects, it will be tough to persuade the private sector to contribute more than a fifth of the $1.4 trillion the government wants invested over five years on power, roads, rail and more.

Details of the plan were outlined on New Year's Eve by Indian Finance Minister Nirmala Sitharaman. The sum involved - with central and state governments each kicking in 39 percent of the total - represents roughly half the country's gross domestic product. On an annualized basis, it's twice as much infrastructure spending during the last full financial year to March. It will be a welcome stimulus for a flagging economy. Yet tycoons that funded the last big push around 2008, when growth was booming and supply shortages in energy and other areas were expected, are in no hurry to jump in again. Licenses for everything from coal to gas were canceled and land approvals did not materialize. That led to delays, cost overruns and bankruptcy proceedings for companies such as Bhushan Power and Essar Steel. The crisis is a major reason why banks are struggling with $200 billion of soured loans. It underscores the need for a mechanism to clear and approve projects before they are awarded. Insurance against regulatory flip-flops may also be necessary. Finally, the creation of more dedicated infrastructure lenders, financed with deposits from commercial banks and other long-term sources, would keep state banks from funding long-term projects with flighty deposits.

India has had some recent successes attracting foreign interest. Zurich Airport International, for example won a bid late last year for a large new airport near the capital. Even so, the bulk of the money for fresh projects has traditionally come from domestic sources. These are battered and bruised: billions of dollars of equity and debt has been wiped out. New Delhi has acknowledged the need to make changes. This big build hinges on patching up its credibility.