Indian Infrastructure

India to become the second Largest Economy by 2050

Indian Economy
The best barometer of country’s economic standing is measured by its GDP. India, t
he second most populated country of more than 1100 million has emerged as one of
the fastest growing economies. It is a republic with a federal structure and we
ll-developed independent judiciary with political consensus in reforms and stabl
e democratic environment .In 2008-09 India’s economy-GDP grew by 6.5% due to globa
l recession. In the previous four years,economy grew at 9%.The Indian economy is
expected sustain a growth rate of 8% for the next three years upto 2012. With t
he expected average annual compounded growth rate of 8.5%, India s GDP is expect
ed to be USD 1.4 trillion by 2017 and USD 2.8 trillion by 2027. Service sector c
ontribute to 50% of India‘s GDP and the Industry and agriculture sector 25% each.
Investment Opportunities In Indian Infrastructure
The robust current growth in GDP has exposed the grave inadequacies in the count
ry’s infrastructure sectors. The strong population growth in India and its booming
economy are generating enormous pressures to modernize and expand India’s infrast
ructure. The creation of world class infrastructure would require large investme
nts in addressing the deficit in quality and quantity. More than USD 475 bn wort
h of investment is to flow into India’s infrastructure by 2012. No country in the
world other than India needs and can absorb so many funds for the infrastructure
sector. With the above investments India’s infrastructure would be equal to the b
est in the world by 2017.
In the next five years planned infrastructure investment in India in some key se
ctors are (at current prices): Modernization of highways -US$ 75 billion, Develo
pment of civil aviation US$ 12 billion, Development of Irrigation system- US$ 18
billion, Development of Ports-US$ 26 billion, Development of Railways- US$ 71 b
illion, Development of Telecom- US$ 32 billion, Development of Power -US$232 bil
lion. Thus in the eleventh five year plan ,investment in the above sectors (Avia
tion infrastructure ,Construction infrastructure, Highway infrastructure ,Power
infrastructure, Port infrastructure ,Telecom infrastructure ) will be US$ 384 bi
llions(Rs 17,20,000 Crores) considering the huge infrastructure market potential
in India. In addition to the above, investments to the tune of US$ 91 billions
have been planned in other infrastructure sectors like Tourism infrastructure
,Urban infrastructure ,Rural infrastructure, SEZs ,and water infrastructure and
sanitation infrastructure thus making the total infrastructure investments in t
he eleventh plan period 2007-08 to 2011-12 as US$475 billions. Domestic and glob
al infrastructure funds have exposure to Indian infrastructure sectors.
Infrastructure sector targets for Eleventh five year plan ending 2012
Electricity: Additional power generation capacity of about 90,000 MW , reaching
electricity to all un-electrified hamlets and providing access to all rural hous
eholds through Rajiv Gandhi Grameen VidyutikaranYojna (RGGVY)
National Highways: Six-laning 6,500 km of Golden Quadrilateral and selected Nat
ional Highways, Four-laning 6,736 km on North-South and East-West Corridors, Fou
r-laning 12,109 km of National Highways, Widening 20,000 km of National Highways
to two lanes, Developing 1000 km of Expressways, Constructing 8,737 km of roads
, including 3,846 km of National Highways, in the North East
Rural Roads: Constructing 1, 65,244 km of new rural roads, and renewing and upgr
ading existing 1, 92,464 km covering 78,304 rural habitations.
Railways: Constructing Dedicated Freight Corridors between Mumbai-Delhi and Ludh
iana-Kolkatta, 10,300 km of new railway lines; gauge conversion of over 10,000 k
m and doubling, Modernization and redevelopment of 21 railway stations, Introduc
tion of private entities in container trains for rapid addition of rolling stock
and capacity, Metro rails and world class stations
Ports: Capacity addition of 485 million MT in Major Ports, 345 million MT in Min
or Ports, construction of jetties and berths, Port connectivity ,channels deepen
ing and port equipments.
Airports : Modernization and redevelopment of 4 metro and 35 non-metro airports
, Constructing 7 Greenfield airports, Constructing 3 airports in North East, Upg
rading CNS/ATM facilities ,Establishing training facilities and MRO
Telecom and IT : Achieving a telecom subscriber base of 600 million, with 200 mi
llion rural telephone connections, Achieving a broadband coverage of 20million a
nd 40 million internet connections
Irrigation: Developing 16 million hectares through major, medium and minor irri
gation works
Urban Infrastructure: Urban renewal projects for selected cities; one million pl
us cities, state capitals and places of historical, religious or tourist importa
nce under Jawaharlal Nehru National Urban Renewal Mission (JNNURM).
Rural infrastructure :As per Bharat Nirman action proposed in rural infrastruct
ure for irrigation, roads, housing, water supply, electrification and telecommun
ication connectivity
Construction and Real Estate infrastructure :Development of residential and reta
il real estate ,Green buildings ,construction of SEZs, Infrastructure projects,
Infrastruture facilities for Common wealth games 2010
Mining Infrastructure :Mineral exploration,Mineral extraction,processing ,techno
logy and equipments .
Investments in infrastructure sectors to create demand:
The estimated infrastructure investments in India over USD475 will create demand
for Power equipment , Construction equipment ,Material Handling equipment ,Elec
tronic and IT systems ,Environment technologies ,Transport equipment , EPC contr
acts, Infrastructure companies in India ,Financial services ,Real estate ,Educat
ion and training ,Design and Planning services , Infrastructure consultants , Ad
visory and professional services and provide opportunities for investors, contr
actors, o&m contractors, developers of infrastructure projects ,foreign players.

Infrastructure policy in India:

Major policy initiatives such as deregulation, viability gap funding ,India infr
astructure finance company, Committee on infrastructure ,rural infrastructure pr
ogramme , National urban renewal mission, public private partnerships, Launch of
private sector infrastructure funds have been implemented in infrastructure sec
tor
Road Policy in India: Indian infrastructure policy on roads permit duty free im
port of high capacity and modern road construction equipments, complete tax holi
day for any 10 consecutive years out of 20 years. Longer concession periods of u
p to 30 years are permitted as per the roads policy of India.
Airports Policy in India: Indian airport infrastructure policy permits 100% tax
exemption for airport projects for 10 years, 100% equity ownership by Non Reside
nt Indians (NRIs), 100% foreign direct investments (FDI) in India in existing an
d Greenfield airport projects, Airport policy of India also allows 49%FDI and 10
0% NRI investment in airport transport services.
Ports Policy in India: As per Indian port policy all areas of port operation ope
n for Private Sector Participation .Private sector participation and JVs now per
mitted. Ports policy of India also allows 100% income tax exemption for a period
of 10 years.
Power Policy in India: Indian power policy permit 100 percent FDI (except atomic
energy) in electricity generation, transmission, and distribution and trading,
Establishing power plants without any license, transmission services for Indepen
dent power transmission companies.
Oil, Gas and mining Policy: 100% FDI permitted for mining (except coal). CASs, l
evied earlier on crude production, has been abolished for the blocks offered und
er NELP. In deepwater exploration royalty for areas beyond 400m bathymetry will
be charged at half the prevailing rate. In petroleum and natural gas sector 100
FDI is permitted except refining ,subject to sectoral regulations; and in the ca
se of actual Trading and marketing of petroleum products, divestment of 26% equi
ty in favour of Indian partner/public within 5 years .In refining 100% FDI is al
lowed in private companies and 26% FDI allowed in Public sector companies.
Real Estate Policy in India: Corporate tax exemption of up to 100% for industria
l parks, SEZs and housing projects are permitted as per Indian Real Estate Polic
y.
Telecommunication Policy in India: 74% FDI is allowed in Basic and cellular, Uni
fied Access Services, National/International Long Distance, V-Sat, Public Mobile
Radio Trucked Services (PMRTS), Global Mobile Personal Communications Services
(GMPCS) and Other value added telecom services, ISP with gateways, radio paging,
end-toend bandwidth. 100% FDI is permitted in ISP without gateway, infrastructu
re provider providing dark fiber, electronic mail and voice mail, subject to the
condition that such companies shall divest 26% of their equity in favor of Indi
an public in 5 years, if these companies are listed in other parts of the world
as per the Indian telecommunication policy.
Why India -India at a glance- Attractive Destination
India has a population of 1.1 billion. More than 30% of the world’s youth live in
India. More than 55% (550 million) of the India’s population is less than 25 years
of age. This is nearly twice the total population of the United States. India’s u
rban population constitutes around 30%. India is a nation growing younger (popul
ation in working age group projected to increase) as the developed world faces t
he problem of aging. India has a huge reservoir of English speaking, skilled and
relatively inexpensive manpower with over 2.6 million engineers (degree and dip
loma holders), 814,000 software professionals, growing every year. It also got a
well developed banking system, with over 67,000 branches and banking practices
conforming to international best standards with net non performing assets ratio
for all commercial banks 1.2%. It has a sophisticated, well regulated capital ma
rket with 23 stock exchanges of which the two largest, the National Stock Exchan
ge and Bombay Stock Exchange ranked as no 3 and 5 in the globe by number of tran
sactions. India has more billionaires than China. This year there were 15 billio
naires in China but last year in India, there were 20 billionaires, according to
the Forbes magazine. Forty-four per cent of Top 100 Fortune 500 companies are p
resent in India. Some of the fortune companies present in India are ABB, Accentu
re, Alctel, AMD,ANZ, APC, Bosch, CSC, Citibank, Caterpillar, CA, Delphi, Dell, D
upont, Digital , Delloitte ,Ford,HSBC,Hyundai, Google,Intel,GE, Oracle ,Microsof
t , Nokia, Siemens. India is the fourth largest economy in terms of purchasing p
ower parity, the tenth most industrialized country in the world, the tenth large
st economy in the world in terms of GDP and is one of the fastest growing develo
ping economies today in the world. The most remarkable feature of its impressive
growth story, especially over the last decade and a half, is that it has happen
ed in a solid, democratic environment, making the process sustainable. The prese
nt infrastructure in India is grossly inadequate for the 1.1 billion populations
. To improve the infrastructure of India, large investments have been planned by
Indian government.
Infrastructure Potential in India:
Ports infrastructure in India:
India has a long coastline of 7,517 km. The existing 12 major ports control arou
nd 76 % of the traffic. Due to globalization, India’s ports need to gear up to han
dle growing volumes. A number of the existing ports have plans for expansion of
capacities, including addition of container terminals. The government has launch
ed the National Maritime Development Programme, to cover 276 port projects (incl
uding related infrastructure) at an investment of about INR 600 billion by the y
ear 2012. Also, States are increasingly seeking private participation for the de
velopment of minor ports, especially on the west ports.
Indian ports are projected to handle 875 million tones(MT) of cargo traffic by
2011-12 as compared to 520MT in 2004-05.There will be an increase in container
capacity at 17% CAGR.Cargo handling at all the ports is projected to grow at 19
per cent per annum till 2012. Planned capacity addition of 545 mt at major port
s and 345 mt at minor ports. Port traffic is estimated to reach 1350 million ton
es by 2012 .Containerized cargo is expected to grow at 18 per cent per annum til
l 2012. Projected Investment in major ports $16 billions and minor ports $9billi
on during 2007-12.
Airports infrastructure in India:
Passenger and cargo traffic slated to grow at over 20% annually and set to cross
100 million passengers per annum by 2010 and and set to cross cargo traffic of
3.3 million tonnes by 2010.Mumbai and Delhi airports have already been handed ov
er to private players.Kolkata and Chennai airports will also be developed throug
h JV route.
Railways Infrastructure in India:
Indian Railways is the largest rail network in Asia and worlds second largest un
der one management. Indian Railways comprise over one hundred thousand track kil
ometers and run about 11000 trains every day carrying about 13 million passenger
s and 1.25 million tones of freight every day. The scope for public private part
nership is enormous in railways, ranging from commercial exploitation of rail sp
ace to private investments in railway infrastructure and rolling stocks. The Go
lden quadrilateral is proposed to be strengthened to enable running of more long
distance passenger trains and freight trains at a higher speed. Programmed also
envisages strengthening of rail connectivity to ports and development of multim
odal corridors to hinterland. Construction of 4 mega bridges costing about US$ 7
50 million is also included in the programme.Construction of a new Railway Line
to Kashmir valley in most difficult terrain at a cost of US$ 1.5 Billion and exp
ansion of rail network in Mumbai area at a cost of US$900 million has also been
taken up. Freight traffic is growing at close to 10% and passenger traffic at cl
ose to 8% annually. Railways have planned a dedicated rail freight corridor runn
ing along the railways Golden Quadrilateral (GQ). The double-line freight corrid
or is expected to evolve systematic and efficient freight movement mechanisms an
d ease congestion along the existing GQ. It would leave the existing GQ free for
passenger trains. The 9260 km dedicated freight corridor to be built at a cost
of Rs 60,000 crore (US$ 15 billion) is being funded partially with a US$ 5 billi
on loan from Japan. The work is expected to be completed within the next 5–7 years
. The first phase of the project would include the Delhi–Howrah and the Delhi–Mumbai
routes.
Power Infrastructure in India:
Presently the installed capacity of electric power generation stations under uti
lities stood at 130000MW and in the five year plan the generation capacity is pl
anned to be increased to 2,20,000 MW by 2012.There is a 13% peaking and 8% avera
ge shortage of power annually. Central government has already taken steps to in
crease capacity by building Ultra mega power projects (UMPPs).There is a plan to
increase Nuclear power capacity from 3900MW currently to 10000 MW by end of 11t
h plan.
Telecom Infrastructure in India:
Even with the rapid growth of telecom sector in India, the rural penetration is
still less than 5%. At 500 minutes a month, India has the highest monthly minut
es of usage (MOU) per subscriber in the Asia-Pacific region, the fastest growth
in the number of subscribers at CAGR of more than 50%, the fastest sale of a mi
llion mobile phones (in one week), the world s cheapest mobile handset and the
world s most affordable colour phone.
Highways and Roads infrastructure:
The Indian road network has emerged as the second largest road network in the wo
rld with a total network of 3.3 million km comprising national highways (65,569
km.), State highways (128,000 km.) and a wide network of district and rural road
s. The US tops the list with a road network of 6.4 million km. Currently, China
has a road network of over 1.8 million km only. Out of the 3.38 million Kms of I
ndian road network, only 47% of the roads are paved. Roads occupy a crucial posi
tion in the transportation matrix of India as they carry nearly 65 per cent of f
reight and 85 per cent of passenger traffic. Over the past decade several major
projects for development of highways linking the major cities have been planned –
and work started on most of them. What is of significance is that private sector
involvement (BOT projects) has finally been found to be feasible in the Indian
context. This has led to an accelerated growth in this sector – which had long bee
n faced with financial constraints. This has also facilitated improvement in the
quality of the new highways and introduction of the latest concepts for toll co
llection, signages etc. The process of development of the new highways is expect
ed to continue for many years to come.
Construction Infrastructure in India:
Construction accounts for nearly 7 per cent of Indian GDP and is the second bigg
est contributor (to GDP) after agriculture. Construction is a capital-intensive
activity. Broadly the services of the sector can be classified into infrastructu
re development (54%), industrial activities (36%), residential activities (5%) a
nd commercial activities (5%). The main entities in the construction sector are
construction contractors, equipment suppliers, material suppliers and solution p
roviders. India’s construction equipment sector is growing at a scorching pace of
over 30 per cent annually--driven by huge investments by both the Government and
the private sector in infrastructure development. It is estimated that there i
s USD860 billion worth of construction opportunities in India
Oil, Gas –Hydrocarbon Infrastructure in India
With the exponential increase in the population of vehicles and industrial requi
rement, the consumption of petrol products is likely to increase to 300 MMT by t
he year 2010. India has established geological reserves of more than 6 billion a
nd exploration acreages are available on offer on continuous basis. It is estima
ted that investment over the next 10-15 years shall be in the range of US$ 100-1
50 billion. Additional refining capacity of 110 million tonnes shall be required
by 2010. Opportunities have emerged in business areas linked to Natural Gas. Pr
ivate opportunities also exist in infrastructure like jetties, storage tanks, mo
vement of oil and petro-products. Oil import constitute largest share of total i
mport and therefore Government has taken many initiatives to mitigate the situat
ion and attract the foreign investors.100% foreign investment has been allowed i
n this sector. Deregulation and de-licensing has been done for the petroleum pro
ducts. Rationalization of pricing has taken place by decontrol and import parity
. Private sector can import most products, pipelines, terminals and tank ages cl
eared for private investment. JV can be formed for the development of infrastruc
ture, marketing and, refining activities.
NEW INSTITUTIONAL MECHANISM FOR PPP
The creation of world class infrastructure would require large investments in ad
dressing the deficit in quality and quantity. , it is necessary to explore the s
cope for plugging this deficit through Public Private Partnerships (PPPs) in all
areas of infrastructure like roads, ports, energy, etc. Given the risks involve
d in large projects the government has realized that only public sector involvem
ent with central government development assistance for infrastructure projects i
s not adequate to meet the challenge. Recognizing the imponderable risks, which
infrastructure projects entail, with long gestation periods, high costs and budg
et constraints, the government has proposed a flexible funding scheme, which wil
l find support from budgetary allocation to fund public-private-partnerships (PP
Ps) for infrastructure projects. The government has proposed India Infrastructur
e Finance Company (IIFC) and formulated a scheme to support PPPs in infrastructu
re. As part of this scheme, PPP opportunities are to be awarded through competit
ive bidding in a transparent manner and for each project, performance is to be a
ssessed against easily measurable standards, based on unambiguously defined crit
eria, in order to inspire confidence among investors.
Recently, legal and regulatory changes have been made to enable PPPs in the infr
astructure sector, across power, transport, and urban infrastructure. For exampl
e, the Electricity Act allowed for private sector participation in the Distribut
ion of electricity in specified area(s) of the distribution licensees under the
role of a “franchisee”. The recognition of the franchisee role is a significant step
towards fostering PPP in the distribution of electricity. In some cases, the im
pact of private sector involvement in terms of end-user benefits has been felt a
lmost immediately. A case in point is the initial Build-Operate-Transfer (BOT) e
xperience at Jawaharlal Nehru Port, where the Minimum Guaranteed Traffic require
ment at the end of 15 years, identified as part of the concession agreement, was
met in just 2 years. The experiment is being replicated across other major port
s as well.
Special Economic Zone (SEZ) – A New Policy
The Government of India has announced a pragmatic “SEZ” policy, which offers several
innovative fiscal and regulatory incentives to developers of the SEZs, as well
as the units within these zones. Each SEZ is treated as a foreign territory and
units located in it are not subject to either customs tariffs or domestic duties
. Sales to Domestic Tariff Areas are permitted, subject to payment of applicable
customs duties and import policies in force. Inputs, whether imported or source
d domestically, are free of any taxes. So are exports made from a SEZ. The only
requirement is that the SEZ and the units located within it are positive foreign
exchange earners. This offers foreign companies tremendous opportunities for ta
king full advantage of Indian strengths in doing business in India. This could b
e either as the developer of the SEZ or as a unit in a SEZ or both. Presently, t
he board of approvals for the SEZs granted formal approvals for 340 SEZs. These
339 SEZs today have lands for development. It is widely expected that the Specia
l Economic Zones approved for various parts of the country, once implemented, wo
uld contribute substantially to India s exports and would help connecting the mi
ssing links in manufacturing. These zones aim at providing an internationally co
mpetitive and hassle free business environment for promotion of exports.