Structural reforms are imperative

Everyone, from governments to corporates across the world, includ ing India, is trying to de- lever age debts, but, as Dr Rajan said, the real need is for struc tural reforms

Astudy released by a business chamber which said that 75 per cent of the real estate projects, totalling around 3,540 and involving over ` 14 lakh crore, are delayed seems rather sensational and may not reflect the actual picture. The Confederation of Real Estate Developers’ Association of India, the premier real estate organisation, does not agree with the findings; it wondered what sort of survey was conducted because none of their members across India were interviewed for this chamber’s study. Even so, according to Credai, there are significant delays in projects in the metro towns because of sluggish demand over the last two and a half years, so cash- flow is slow. There are also monumental environmental delays. It is only in the last six months that environmental clearances have been speeded up, but there are still some 57 permissions to be got, including licence charges, etc., that take up nearly half the cost of the project, according to some real estate consultants. Credai says that in the top seven cities 30 per cent of projects on average are behind schedule by two to three years. But the real estate sector, it said, is still better off than the others as it has a mere 1.2 per cent of nonperforming assets compared to 16 per cent in textiles and much larger percentages in other industries. This is because loans to the real estate sector are heavily collateralised.

The same cannot be said for infrastructure and other projects facing delays despite the best efforts of the Narendra Modi government to kick- start stalled projects. One of the main reasons is the slowdown in the global economy, and in India where investment in new projects is slow in coming. Most infrastructure companies are highly leveraged. For instance, a leading business magazine has calculated that between 2009 and 2010 and 2013 and 2014, India Inc. more than doubled its debt on its balance sheet — from ` 20 lakh crore to over ` 41 lakh crore, or $ 690 billion — which is more than the global economies barring 19.

This debt syndrome, which was also taken on by sovereign governments, is really a hangover from the easy money policy of the US Federal Reserve, the Europeans, and India as well, as RBI governor Raghuram Rajan recently pointed out. This policy, which was not overseen by any multilateral agencies, resulted in the crisis moving from the US ( the subprime crisis) to Europe, and now the emerging markets. As Dr Rajan said, “We have, in a sense, a global game of musical crises and we have to worry about where this ends.” Everyone, from governments to corporates across the world, including India, is trying to de- leverage debts, but, as Dr Rajan said, the real need is for structural reforms.