Indian infrastructure at crossroads

The stakes are huge: Asia's third-largest economy has said it needs to double infrastructure spending to $1 trillion in the five-year period starting 2012, but its record is chequered with a history of missed deadlines, red tape, and massive cost overruns.

With an economy growing at 8.5 percent and a fast-urbanising population of 1.2 billion, the need to speed project approvals, implement new financing models and lure foreign investors is increasingly acute.

While the opportunity is clear in a country with choked roads and frequent blackouts, investors are wary, given the history of missed deadlines and red tape.

The Indian government is struggling with a fiscal deficit, rising raw material costs and bidding wars for projects are hurting profits, and risk-averse foreign investors are shying away from committing long-term funds.

"The gap between what we are delivering and what we need is fairly high," said Manish Agarwal, executive director at global advisory firm KPMG.

"A number of steps are being taken. But the issue is: will they succeed and happen fast enough?"

Is red tape getting better or worse? Which sectors are attracting most interest? How do returns compare with similar projects globally? How do sector companies attract foreign investment in large projects? Are the challenges forcing investors and developers to look overseas instead?

These will be some of the questions that top industry executives, investors and policy makers discuss at the fifth annual Reuters India Investment Summit on Sept 27-29, with infrastructure as its central theme.

India spends about 6 percent of its GDP on infrastructure, less than several countries in Asia, and nearly half of the 11 percent invested by larger rival China.

There are ambitious plans to boost this to 10 percent by 2012, with private sector investment contributing a much higher share.

"The issues are at different levels. There are issues at the policy level itself, in other sectors it is a question of user charges not being adequate. For others, there is not enough pipeline of bankable projects," KPMG's Agarwal said.

"There are many challenges in the implementation of infrastructure projects in India," Credit Suisse said in a note to clients on Friday.

"Key risks...are in pre-construction phase for power projects, regulatory overhang in airports and highly competitive bidding reducing returns in road projects," it said.