India's poor infrastructure barrier to investment: KPMG

By agencies   |   Tuesday, 26 July 2005, 07:00 Hrs
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LONDON: Foreign investment in India is being held back by shortcomings in power stations, roads and ports, and is reducing the potential of the country to rival China in manufacturing, according to a study by the KPMG business services company. Weak infrastructure in India "remains a significant cost factor" for manufacturing companies in the country, the report says, with the unreliability of electricity supply being the number one complaint. Companies in India can expect each month nearly 17 significant power cuts, compared with one in Malaysia and nearly five in China. Many multinational manufacturers, including Ford, Honeywell and Emerson of the U.S., Siemens of Germany and the Swiss-Swedish ABB, are looking increasingly favorably at India as an investment location, mainly to sell products locally as the economy expands, and also as a place to produce goods for sale elsewhere using the benefit of lower labor costs. In the past five years, China has grabbed a large share of the world's investment in manufacturing while India has been left on the sidelines. However, many believe that India is starting to catch up as a place for global companies to set up plants, helped by a more positive attitude towards foreign investment by the Indian government. KPMG reckons the opportunities for investors in India are being limited by problems in shifting goods in and out of the country because of poor transport networks - and also by weakness in telecommunications and electricity systems. Corruption among government bureaucrats is also, the report says, an "everyday reality" and can impede efforts by companies to operate with maximum efficiency, in terms of dealing with government planners and suppliers. While businesses complain of corruption and bureaucracy, various studies show that Indian infrastructure needs dozens of billions of dollars in investment. On the brighter side, the study says there are some signs that infrastructure is beginning to improve as the government starts to address the issue, partly through efforts to encourage more private companies to put money into projects such as new roads.