From a macro and micro perspective, the Indian infrastructure is a “bang-on” investment destination for any overseas company seeking high and long term returns. The key, however, is to identify and work with the right local partner. Hemant Kanoria Chairman & Managing Director Srei Infrastructure Finance Ltd The global crisis, as many call it, has affected industry, trade and investments across sectors and economies. Yet, India’s infrastructure sector has recorded high growth and continues to show a positive outlook despite some regulatory challenges. India is definitely “the new land of opportunity” for potential investments. Sunil Kanoria Vice Chairman Srei Infrastructure Finance Ltd Opportunities in infrastructure investments in India 2013
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From a macro and microperspective, the Indian infrastructureis a “bang-on” investmentdestination for any overseascompany seeking high and longterm returns. The key, however, is toidentify and work with the right localpartner.
Opportunities in infrastructure investments in India 2013
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DDisclaimerThis report has been prepared by Srei InfrastructureFinance Limited (“Srei”) who owns the sole rights of thereport. Srei has taken due care and caution in preparingthis Report which is based on information from variousreliable sources, all of which are cited. However, Srei doesnot guarantee the accuracy, adequacy or completeness ofany information and is not responsible for any errors oromissions or for the results obtained from the use of suchinformation. Srei is not liable for investment decisionswhich may be based on the views expressed in this Report.Srei especially states that it has no financial liabilitywhatsoever to the subscribers/ users/ transmitters/distributors of this Report.
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'Many large international investors want todeploy capital into Indian infrastructure inyield-type cash flow generating infrastructureassets, whether the risk is much lower thanequity, but the return is much higher thanOECD debt. We at Srei are putting togethera bespoke product for such pension andendowment funds, and other patientinvestors.'
Indiaʼs infrastructure sector continues to be one of the key
drivers of the nationʼs growth. An extremely large
population coupled with the urgent need for economic
growth are putting infrastructure on pressure for rapid
modernization and enlargement. Therefore, development
of adequate and quality infrastructure is a necessary, if not
compulsory, condition to maintain growth.
”It is said that every Rupee invested in the infrastructure sector creates 10 times its worth inopportunities.”
Welcoming the 12th Five Year Plan, with an
impressive USD 1 trillion dollars of investments, India
is opening a new chapter in infrastructure
development which promises to open more avenues
for innovative planning, projects, policies and
partnerships.
The infrastructure sector is not only the backbone of
an economy, but also plays a vital role in shaping the
countryʼs social and cultural fabric. It contributes
significantly to the growth of the overall gross
domestic product (GDP), while creating opportunities
for employment and investment.
Changes in world economy indicate a global shift in
economic strength towards emerging markets, a trend
that is favorable to India. The advanced economiesʼ
share of global GDP is projected to decrease from 65
percent to 51 percent, while the emerging economies
share is projected to increase from 35 percent to about
49 percent (Table 2.1). India is well poised to become
one of the leaders among these emerging economies,
with the potential to become the third largest GDP in
the world in two decades1 . Infrastructure investment is
critical to capitalizing on the potential and sustaining
rapid growth in the coming decades.
1 Planning Commission Approach Paper for the 12th Five Year Plan, 2011, Page 13
Source: The World Economic Outlook database of the International Monetary Fund. The figures up to 2016 are projections by the IMF. The projections for India
beyond 2016 have been made by the DPPP Division of the Planning Commission.
Table 2.1 ‑ Structure of Global GDP (in current USD Trillion)
2000 2011 2016 2020 2025
World GDP 32.2 68.7 90.5 110.5 140.5
Advanced Economies 25.7 44.4 53.3 61.1 71.7
(79.7%) (64.6%) (58.9%) (55.3%) (51.1%)
Developing and Emerging 6.5 24.3 37.2 49.4 68.8
(20.3%) (35.4%) (41.1%) (44.7%) (48.9%)
of which India 0.5 1.9 3.6 5.8 10.0
(1.5%) (2.8%) (4.0%) (5.2%) (7.1%)
12
India, already highly populated,
with 17.5 percent of the world's
population, is projected to be the
world's most populous country by
2025 2.
As presented on Figure 2.1, New
Delhi will reach 22.2 million citizens
by 2025, followed by Mumbai who
will reach 20 million and Kolkata
15.6 million. This puts even more
pressure on the faster progress of
infrastructure development.
Population Pressures on the Infrastructure
13
2 US Census Bureau, Demographic Internet Staff. "United States Census Bureau ‑ International Data Base (IDB)". Census.gov. Retrieved 2011‑09‑24.
Fastest-growing populations, annual average increase, ‘000 1995-2010
Regulatory FrameworkThe Planning Commission has initiated several
policies in order to develop structures that maximize
the role of public‑private partnerships (PPPs) ensuring
the timely creation of world‑class infrastructure.
These policies include3:
� Cabinet Committee on infrastructure (CCI):Instituted in 2009, the CCI focuses on financial,
legal and institutional measures required to
enhance investment across all infrastructure
sectors. In addition, it reviews and approves
policies and projects.
� Public Private Partnership (PPP) Framework: The
Government has drafted a National PPP policy in
order to lessen some of the risks and inefficiencies
in development and implementation of projects. It
addresses principles, process, enabling
frameworks (financing, land, stakeholder
communication), institutional and governance
mechanisms. The policy also includes:
standardization of contractual documents, defines
3 The Secretariat for Infrastructure, Planning Commission “Private Participation in Infrastructure” Page 5 and 6
14
the risks, liabilities and performance standards,
waives charges for foreign and private investment,
establishment of the Public Private Partnership
Appraisal Committee (PPPAC) to streamline
approval at the Central level, launching of an
online database for PPP projects that serves as a
virtual clearinghouse of all PPP projects designed
to be accessible based on location, sector, type
(BOT, BOOST, LDOT etc), domestic/foreign
investment and type of investment instrument.
� Tax Exemption: The Government has incentivized
private sector participation by tax exemption and
duty‑free imports on road‑building equipment
and machinery. Also, eligible infrastructure
projects can avail 100 percent tax exemption for
upto 10 years.
� Viability Gap Funding (VGF): In order to enhance
the financial viability of projects that do not pass
the standard thresholds of financial returns, the
Central Government provides up to 40 percent of
capital costs in grant assistance to PPP projects
thereby expanding access to capital.
� India Infrastructure Finance Company Limited(IIFCL): It is a non banking financial company, a
wholly owned subsidiary of the Government of
India. The company provides upto 20 percent of
long term financial assistance to infrastructure
projects carried out by public sector companies,
private sector companies under public‑private
partnership and private sector company's projects
whose services are to be regulated or setup in
arrangement with State Government, Central
Government or a public sector undertaking. In
addition, the Government has authorized IIFCL to
raise additional capital through tax‑free bonds,
especially for roads, highways and ports.
� Foreign Direct Investment and InfrastructureDevelopment – Indian infrastructure sector is
becoming an attractive investment area for FDI.
Table 2.2 clearly indicates the Foreign Direct
Investment mechanism towards each
infrastructure sector.
15
Table 2.2 – Foreign Direct Investments in India
Source: infrastructure.gov.in
Sector Foreign Direct Investment
Roads 100% FDI allowed in road projects
Ports 100% FDI allowed in port projects
100% FDI allowed for green‑field
airports
Airports For existing airports government
approval needed for FDI beyond 74%
49% FDI by foreign airline operators
allowed in domestic airlines
Up to 74% FDI allowed for telecom
service providersTelecom
100% FDI allowed for telecom
equipment manufacturers
� Infrastructure Debt Funds ‑ The Infrastructure
Debt Fund (IDFs) instrument was proposed by the
Ministry of Finance in the Union Budget of
2011‑12 to facilitate steady inflow of long‑term
debt for funding infrastructure projects. The IDFs
are expected to encourage Insurance and Pension
Funds to invest more as well as provide long‑term
low cost debt for infrastructure projects. In its
initial concept report, the Government proposed
setting up IDFʼs for USD 11 billion through PPP
expecting it to bridge the emerging gap in the
total debt requirement in infrastructure funding4.
So far 3 funds have been already launched and 3
more are awaiting regulatory approval.
4 India Infrastructure Debt Fund: A Concept Paper , Gajendra Haldea http://infrastructure.gov.in/pdf/iidf‑aconcept‑paper190410.pdf, Page 1
16
Key Challenges
Despite favorable macro economic fundamentals,
the execution and policy issues pose serious
challenges to investments in the infrastructure space.
The policy paralysis and lack of transparency in
regulatory mechanisms in the recent past have
adversely affected investor sentiment resulting in a
slowdown in project execution across the various
verticals of infrastructure. Even though this
environment is changing, it will take considerable
efforts from the Government to boost the overall
sector keeping various macroeconomic conditions in
mind, such as the slump in the international financial
sector, inflation and competing economies that are
more price conscious.
Figure 2.2 – Reasons for lingering infrastructureprojects
Since 2010, approximately 140 projects in the
infrastructure space were detained, abandoned or
put off for implementation. About 52 projects in 2011
and 2012 were turned unviable due to the poor
economic growth, in comparison to year 2010 where
only 16 projects were detained or abandoned.
Reason can be found in the economic environment
which has weakened investorʼs confidence as well as
land acquisition issues. Lack of fuel linkages have
impeded at least six major power projects to take off5.
Insufficiency of User Charges ‑ Large part of the
infrastructure sector in India (like irrigation, water
supply, urban sanitation, and state road transport) is
struggling to be commercialized for various reasons,
such as, regulatory, political and legal constraints.
Therefore, the Government is not being able to set
sufficient user charges on these services, which
negatively affect the servicing of infrastructure loans.
Legal and Procedural Issues ‑ Problems related to
infrastructure development range from those related
to land acquisition for various infrastructure projects
to several other issues such as environmental and
other legal clearances, often resulting in increased
procedural delays. The State Governmentsʼ support in
maintenance of law and order, land acquisition and
obtaining environmental clearances are necessary for
the projects undertaken by the Central Government
or the private sector.
Delays in Implementation of projects ‑ Delays in the
Government and regulatory decision‑making have
caused several road, railway, port and other
infrastructure projects to fall behind schedule.
Availability of Financing – According to a Standard &
Poorʼs report, India needs to reform policies
concerning project execution and long‑term funding
to overcome its infrastructure challenges6. Innovative
schemes to attract large scale financing are one of
the most important challenges in infrastructure
development. It is really important to bring big‑ticket
long‑term investors like strategic investors,
17
5 Infrawindow, Reports Statistics, July 2012, Web site: http://www.infrawindow.com/reports‑statistics/three‑major‑reasons‑for‑stalling‑infra‑projects_96/
6 Infrastructure to hit India growth:S&P, "The Financial Express, 2011.
Source: Infrawindow, Reports Statistics, July 2012
Miscreasons,
68
Landacquisition,
40
Fuel,10
Managementdecision, 6
Approval, 6Unviable, 5
Environmentcl, 5
Private Equity Funds, Pension Funds, and Sovereign
Funds as 50 percent of the projected investment is
estimated to come from the private sector as per the
12th Five Year Plan. Hence, financing infrastructure will
pose a big challenge in the coming years and it will
require innovative ideas and new models of financing.
Investment Opportunities12th Five Year Plan ‑ The Planning Commission has
defined infrastructure development as a key priority
in the 12th Five Year Plan (2012‑2017), with projected
investments of USD 1 trillion in the next five years. Of
the total targeted investment, private sector is
expected to invest almost USD 500 billion ‑ with
around USD 350 billion through debt and USD 150
billion of equity7.
Table 2.3 Projected Investment in Infrastructure: 12th Five Year Plan
7 Planning Commission, Government of India
However, as per some estimates, Indiaʼs ambitious target to invest USD 1 trillion to boost its infrastructure over
the next five years may fall short by at least 20 percent, due to slowing economic growth and failure to meet
investment targets in the sector in the 11th Five Year Plan.
(at 2006‑07 prices, exchange 11th Plan 12th Plan rate at ` 40) Sectors ` crore Share ` crore Share
Balance length for award (Km.) 367 1,773 11,128 2,420 1000 659 16,347
Table 3.1: Status of NHDP projects ‑ Phase I to VII as of October 201225
Table 3.2: Non‑NHDP projects status in 201126
Category 2010‑11 Target Achv.* Remaining
Missing Link (km) 2 0.1 2
Widening to 2‑lanes (km) 1117 1042 75
Strengthening (km) 1213 1016 197
Improvement of Riding Quality (km) 2307 2026 281
Widening to 4‑lanes (km) 137 99 38
Bypasses (No.) 15 3 12
Bridges /ROBs (No.) 187 103 84
The roads sector in India poses an exciting opportunity for Internationalplayers given the large investments envisaged as part of the 12th PlanningCommission. A lot of investment opportunities is available at attractivevaluation in both greenfield and brownfield operating assets. The Indian roadsector today is a culmination of global experts having an array of services atvarious levels.
09
4. Opportunities in the
Power SectorOverviewPower sector in India has witnessed a major
transformation over the last two decades. India is the
worldʼs fifth largest producer of electricity with an
installed generation capacity of approximately 206,456
Mega Watts (MW), almost 200 percent more than its
installed capacity of 69065 MW in March 19921.
Such a remarkable growth in the sector is largely
attributed to the reforms in the early 90ʼs such as the
formulation of Electricity Act 2003 coupled with
increased private sector participation.
However, in spite of such a massive addition in
generation capacity over the last few years, India has
managed to reach merely 21.5 percent of Chinaʼs and
18.5 percent of USAʼs installed capacity.
The growth in the power sector is essential for the
overall economic development of the country. India
has so far struggled to maintain the demand versus
supply during the time we faced an increased pace in
industrial and commercial activities resulting in a high
need for power. The stark demand supply gap is
evident in the charts below, which shows the energy
shortage in the country ranging from 8 percent to 17
percent between years 1997‑98 to year 2011‑12.
1 Central Electricity Authority : http://www.cea.nic.in/reports/monthly/executive_rep/apr12/7.pdf
Brazil
106189 225 284
8781,025
India
1200
1000
800
600
400
200
0Russia Japan China United
States
Figure 4.1 Country wise installed capacity (GW)
Source: The U.S. Energy Information Administration (EIA); http://www.eia.gov/countries/
8.4
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
9.6
9.8
11.1
10.18.8
7.3
12.3
13.8 16.6 11.9
12.7 9.8
10.6
0
5
10
15
20
25
30
Peak Shortage (%) Energy Shortage (%)
32
Source: Annual Report 2011‑12 (Page 12); Ministry of Power, India
Figure. 4.2 Energy shortage and Peak shortage
While the Government made sincere efforts in
making power available to widely distributed
geographical boundaries, the per capita
consumption of electric power still remains very low
compared to the world average as shown in figure
4.3. It is apparent that Indiaʼs per capita consumption
is among the lowest when compared to other
developed and developing economies. It is
approximately 25 percent of China, which has a
comparable population size.
33
18000 16766
1351511309
8220
Can
ada
(kw
h)
Un
ited
Sta
tes
Au
stra
lia
Jap
an
Fran
ce
Ger
man
y
UK
Ru
ssia
Bra
zil
Ch
ina
Ind
ia7585 7175 6192 6122
2066 2040 583
14000
10000
6000
2000
Figure 4.3 Per Capita Consumption of Electricity
Source: IEA, World Energy Statistic, 2008
However, such constraints are not only specific to
India. Infact, most of the developing countries face
the similar crisis in availability of power to boost
economic growth.
GenerationThe Power industry in India is often defined by high
growth, successive reforms and increasing private
sector participation. The generation has grown at
CAGR of 5.38 percent from 1998 to 20122. The all
India installed power generation capacity as on July
30, 2012 is 206456 MW, of which the break is:
Thermal ‑ 137386 MW, Nuclear ‑ 4780 MW,
Hydro – 39291 MW and Renewable – 24998 MW.
About 57 percent of current generation capacity is
coal based and the same is likely to continue for the
foreseeable future.
2 2012 data has been taken from CEA letter # CEA/OPM/PPI/6/1/2011 Dated 13.04.2012 3National Electricity Plan, CEA, January 2012, Page 1
4National Electricity Plan, CEA, January 2012
34
Table 4.1A 18th Electric Power Survey (EPS)
Table 4.1B CAGR for Terminal Year
GDP Growth GDP Energy EnergyRates Electricity require‑ require‑
Elasticity ment ment(Mkwh) (Mkwh)
2016‑17 2016‑17
Actual Energy 0.80 1321972 1877313
requirement 0.90/0.8 in 1403414 1992611
(upto 2009‑10) 12th/13th
with 9% Plans
Growth rate 0.95 1445689 2187300
1.09/0.9 in 1489028 2205577
12th/13th
Plans
Actual Energy requirement 1319069 1858999
(uptp 2009‑10) with actual
Growth rates
18th EPS* 1354874 1904861
Terminal Year Required CAGR forTerminal Year Target
Achievement
Terminal Year 12th Plan‑ 2017 9.10%
Terminal Year 13th Plan‑ 2022 8.07%
Figure 4.4 Generation Mix
Thermal 67%
Nuclear 2%Renewable
Energy Sources 12% Hydro19%
In 2011, per capita consumption of power is 814
kwh, which indicates the apparent failure of the
Governmentʼs ambitious target of 'Power to all by
2012' under the National Electricity Policy3. The
latent/unmet demand exhibited by the low per
capita consumption will further exert pressure for
capacity addition. Accordingly CEA has calculated
energy requirement (MkWh) for 12th & 13th Plan
based on the on draft 18th Electric Power Survey
(EPS) as per the tables below4:
Source: 18th Electric Power Survey (EPS), National Electricity Plan,
CEA, January 2012
35
The high CAGR indicates opportunities for investment in the sector with high growth and moderate returns
with risk protection. The entire value chain of the power sector i.e. Generation, Transmission, Distribution, and
trading will require investment.
The EIA projections for increase in installed capacity, as shown in table below, indicates a growth rate of 3.2
percent till 2035, which endorses the sustainable growth momentum of the sector in the near future.
Table 4.2 EIA Projections for increase in Installed Capacity
History Projections GrowthRate
2008 2015 2020 2025 2030 2035
United States 1,009 1,075 1,085 1,119 1,170 1,221 0.7
Russia 224 227 235 242 258 277 0.8
China 797 1,118 1,313 1,492 1,666 1,817 3.1
India 177 240 290 332 371 411 3.2
Brazil 104 122 144 172 205 242 3.2
Total OECD 2,495 2,684 2,798 2,917 3,047 3,181 0.9
Total Non‑OECD 2,128 2,628 2,998 3,352 3,722 4,091 2.5
Total world 4,623 5,312 5,796 6,269 6,769 7,272 1.7
Renewable EnergyThe country has significant potential of generation
from renewable energy sources. The technology
evolution and fiscal incentives have promoted the
growth in the Indian renewable energy sector. The
key policies are:
� National Action Plan for Climate Change(NAPCC): NAPCC targets to increase the share
of renewable energy in the total generation
capacity of the country. The Plan has set the
minimum renewable energy purchase
obligation (RPO) target at 5 percent of the total
energy procurement in 2009‑10, with a
1 percent year‑on‑year (y‑o‑y) increase for the
next 10 years.
� Renewable Energy Purchase Obligation (RPO):State level RPO regulations have been put in
place by SERCs in most of the states. The RPO
regulations are required to be met by
obligated entities (DISCOMS, group captives
and open access customers) by purchasing
renewable energy either by entering into PPAs
with renewable energy assets and/or by
purchasing renewable energy certificates
(RECs).
The Installed capacity as on 31st December, 2011
from renewable energy sources is 20,162 MW5.The
majority of the capacity is in the private sector. The
Total Renewable Installed capacity comprises
14104.62 MW from Wind, 3120.83 MW from Small
Hydro Plants, 2787.63 MW from Biomass Power &
Biomass Gasifiers and 149.16 MW from Solar
power & Urban & Industrial waste.
India ranks fifth in the world in terms of installed
capacity of wind turbine power with 14104.62 MW
installed capacity, and plans to generate 22,000
MW of solar power by 20226 . The fossil fuel will
have finite life and will always suffer from rising
prices. Solar and wind energy offers great
potential for a sustainable energy solution.
36
5 National Electricity Plan, CEA, January 2012, Page 12
6 http://www.businesseconomics.in/?p=1626
37
Transmission & Distribution (T &D)A strong transmission capability is necessary for
growth of the power sector. A T&D system comprises
Private Sector ParticipationThe Government has recently stressed on increased
private sector investment in the power sector. As a
result in 2012, the private sector has achieved 27.75
percent share in the installed generation capacity.
The increasing participation has been caused mainly
by the regulatory framework and the need of funds
by the Government for the implementation of
massive capacity addition through large scale
projects. The license free generation and distribution
of power in rural areas and open access up to 1 MW
have been some of the key reforms in the sector.
Power is clearly the focus area of the Government,
projecting an investment of USD 314 billion over the
12th Five Year Plan in Generation, Distribution and
Transmission of the power sector15. Such a massive
capacity expansion plan and overhaul of the
distribution and transmission sector is expected to
encourage global power companies to participate
not only in generation but also investments in power
utility companies. There is also scope for
technological import in developing grid networks in
India following a recent grid collapse in August 2011.
There has been significant demand for SMART Grid
technology in India to improve the efficiency,
reliability, economics, and sustainability of the
production and distribution of electricity across the
country.
Thus, the overall growth momentum in the power
sector is likely to continue in the foreseeable future,
and has a lot to gain from a global investment
perspective.
42
Figure 4.7 Private & Public Share in Generation (MW)
Central30.23%
State
Private
CentralPrivate27.75%
State86275.442.02%
Source: CEA Monthly Capacity Report, June 2012
15 Planning Commission of India
India today offers one of the
highest growth opportunities for
private developers in power sector
as the demand for electricity is still
enormous and continues to grow
steadily. Despite its complexity and
regulatory challenges, the entry of
several global players is expected
to change the dynamics of the
Indian power industry in coming
years.
“
”
5. Opportunities in
PortsOverviewPorts play an integral role in the growth of our
economy with almost 95 percent of the volume and
70 percent of the value of India's international trade
being routed through maritime transport1. The
coastline of India measures over 7500 km in length and
is dotted with more than 200 ports2 . Its strategic
position makes it compulsory for most cargo ships
navigating between East Asia and America, Europe and
Africa, to pass through the Indian territorial waters.
There are two basic categories of ports within the
country‑ namely Major Ports and Non‑ Major Ports.
The Major Ports are a total of 13 in number and
Non‑Major Ports about 200, out of which an
estimated one‑third of the Non‑Major Ports are
currently operational3.
The Department of Shipping holds the portfolio for
taking decisions relevant to shipping and ports,
which include ship building/repair, national
waterways, inland water transport and ports.
With the economic reforms of 1991 and opening of
investments in India, exports and imports have
witnessed remarkable growth. The increase in foreign
trade since 2007 can be ascertained from the chart
below. Ports have played a vital role in this overall
economic development.
The percentage of exports that contributed to GDP
has increased by nearly 4.5 percent since 2007 to
12.85 percent of GDP in 2012. At the same time the
imports have grown YOY.
Cargo Traffic at India's major ports during financial
year 2011 was 570.3 million tonnes (MT), which was
1.59 percent more than the cargo traffic of the same
period last year4 .
1 http://www.oifc.in/sectors/infrastructure/ports. Article‑ Ports in India, Paragraph 1. 2 http://www.ibef.org/download/Ports50112.pdf, Slide 3
3http://www.ibef.org/download/Ports50112.pdf, Slide 5 4 Port wise traffic in India ‑ http://shipping.nic.in/writereaddata/l892s/7yearsTRAFFIC‑79318523.pdf
Table 5.1 Trade Performance: Growth in Value, Volume, Unit Values & Terms of Trade
44
(Annual per cent change)
Source: Directorate General of Commercial Intelligence and Statistics (DGCI&S), KolkataNote: 2011‑12 (April‑January).Volume and unit value index of exports and imports are with new base (1999‑2000=100)
EXPORTS IMPORTS TERMS OF TRADEValue Value
Rupee USD Unit Rupee USD Unit terms terms Volume Value terms terms Volume Value Net Income
RailwaysOverviewThe Indian Railways (IR), a state‑owned enterprise, is
operated by the Government of India through the Ministry
of Railways. The Indian Rail network is the third largest in
the world, operating 19,000 trains per day, comprising
12,000 passenger trains and 7,000 freight trains1. It operates
22 million passengers every day and 923 million tons of
freight each year2.
Almost 74 percent of revenue in this sector comes
from the movement of freight, while the remaining
comes from the passenger traffic (Figure 6.1). Growth
in revenues is expected to come from both sectors,
due to demand for price increase. Current state of IR
gives a huge scope for improvement in many areas
such as safety, speed, freight capacity, new
locomotives and modernization of the rolling stock
etc. Modernizing Indian Railways requires a strong
generational change with bold vision, clarity and
various new initiatives.
The Growth DriversGrowth in revenue is expected to come from a
fundamental increase in demand in freight and
passenger traffic. Given the growth in Indiaʼs
population, increased demand for connectivity and
transportation of both resources and passengers, and
the perceived cost advantage of railways, the Ministry
of Railways has concentrated on increasing capacity
in both passenger and freight segments.
Growth of freight traffic ‑ The freight traffic
amounted to 969.78 million tonnes in fiscal year
2011‑12 registering a growth rate of 5.24 percent over
the previous year. Growth is expected to continue in
the medium term based on increased demand
especially due to commodity transportation3.
1 http://www.oifc.in/Sectors/Infrastructure/Railways/Railways‑in‑India 2 Government of India, Planning Commission, An Approach to the 12th Five Year Plan,
The table below captures some of the major upcoming projects in Railways that would help it become one of
the largest developed rail networks in the world and a catalyst for the socio‑economic growth of the country.
58
Table 6.2 Upcoming Railways PPP Projects
Sl. No. Project Total Cost Time Investmentin ` frame expected in next
Crores (years) 5 years (through Cost to(USD mn) PPP) Goverment
1. High Speed Corridor 50,000 10 20,000 Vialablity Gap‑upto
Mumbai‑Ahmedabad (8,993) (3,597) 20% of cost
2. Elevated Rail Corridor in 20,000 5 20,000 Vialablity Gap‑upto
Mumbai suburban (3,597) (3,597) 20% of cost
3. Redevelopment of station and
Logistic Parks
4. Wagon leasing. Private freight 5,000 5 5,000
terminals and other freight schemes (899) (899)
5. Dedicated freight corridors
6. Loco and coach manufacturing units 6,000 5‑6 5,000 Equity share of
(1,079) (899) about ` 300 crores
(USD 54 mn) &
assured off‑ take of
products for 10 years
7. a) Renewable energy 1,000 5 1,000 assured of‑take
projects (Solar, wind, etc.) (180) (180)
b) Energy saving projects 1,000 (180) 1,000 (180)
c) Captive power generation 4,000 (719) 4,000 (719)
Total 97,000 56,000(17,446) (10,072)
7. Opportunities in the
Aviation SectorOverviewThe growth journey of the Indian Aviation sector started
with the liberalizaion in the mid nineties, resulting in a
growth as private service airlines entered the sector. In
2010, Indian aviation grew around 13.6 percent, among
the highest in the world1. This growth trend is expected to
continue as per the Indian Ministry of Civil Aviationʼs Vision
2020 – estimating an annual growth rate of around 15
percent over the next five years2.
60
Despite such a progressive
outlook, the Indian aviation
sector is likely to face some
challenges going forward,
keeping in mind the environment
of slowing GDP growth, increased
fuel prices, slump in passenger
growth and a highly competetive
market. In the current year, the
passenger growth is estimated to
further slow down to just under
10 percent. At the same time, the
nationʼs full service carriers
continue to suffer under the
burden of approximately USD 16
billion in debt3.
Table 7.1 ‑ ProjectedGlobal Ranking of Indianaviation by airport traffic
1 RNCOS Indian Aerospace Industry Analysis, 2011, Page 2 2 Ministry of Civil Aviation Vision 2020
3 Center for Aviation CAPA, Article: Growth to slow in 2012 but long‑term growth of around 15% expected over next five years
Source: CAPA proprietary model,Airport Council International
Source: Directorate General of Civil Avation (Aug 2011)
Market Flight OccupancyShare (%) Rate (%)
26.3 (combined) 72.1 (Jet)
73.9 (Jet Lite)
18.8 75.9
18.7 73.2
17.4 72.8
13.4 66
5.3 65
2012 2017PASSENGERSIN MILLION
USA 1552 USA 1790
CHINA 497* CHINA 792*
UK 282 INDIA 327
SPAIN 251 UK 324
JAPAN 228 SPAIN 294
GERMANY 218 JAPAN 259
INDIA 176 GERMANY 252
FRANCE 168 BRAZIL 224
BRAZIL 165 FRANCE 192
ITALY 154 ITALY 180
Table 7.2 Market Share of Leading Indian Airlines
61
4 India Airport Market Assessment
5 Planning Commission Work Group, 12th Five Year Plan (2012‑17) for Civil Aviation Sector, Page 19
The Growth DriversGrowing demand ‑ According to the “India Airport
Market Assessment”, rise in per capita income is
making air travel more affordable for Indian travellers.
Indiaʼs fast growing tourism industry will also add fuel
to the market, improving its future outlook4 . As
presented in Table 7.1, it is anticipated that by
FY 17, Indian airports (including domestic and
international) will handle close to 327 million
passengers (in FY 11 passenger traffic stood at
143.4 million).
Increasing Investments – There has been a steady
rise in private sector investment in the aviation
industry driving large scale modernization and
greenfield projects across airports in tier II and tier III
cities. Planning commission has almost doubled the
investment allocation for the aviation sector to USD
17 billion as per the 12th Five Year Plan as compared
to USD 9 billion in the 11th Five Year Plan.
Policy Support – The Government has increased their
focus on infrastructure, creating policies which will
support and increase the liberalization of the sector
such as an Open Sky Policy and FDI encouragement,
which are just some of the actions changing the
outlook of Indian aviation.
Increase in Passenger VolumeAccording to forecasts as per the 12th Five Year Plan
domestic passenger traffic is estimated to grow at an
average annual rate of around 14.5 percent between
2012 and 2017. Domestic passenger volume is
expected to touch 209 million by FY 17 from 106
million in FY 11. Similarly, international passenger
traffic is estimated to grow at an average annual rate
of 9.6 percent during the 12th Five Year Plan period,
to reach 60 million passengers by FY 17 from 38
million in FY 11. Overall, total traffic is expected to
jump to 269 million passengers by FY 17. Passenger
terminal capacity is expected to touch 370 million
across all airports as per the investment plans of the
operators5.
300
250
200
150
10071
106
209
60
3826
144
97
269
50
0Domestic International
FY 07 FY 11 FY 17 (Forecast)
Total
Figure 7.1 ‑ Passenger Traffic at Airports (In Mln)
Source: Planning Commission Working Group Paper, Civil Aviation for the
12th Five Year Plan (2012‑17)
Increase in Cargo VolumeCargo growth will necessitate investment in
specialized cargo terminal and equipments.
Independent investments suggest an additional
requirement of 30 functional airports by 2017 and
about 180 functional airports in the next 10 years6. The
Sub‑Group has projected that the domestic cargo
traffic would grow at an average annual rate of around
14.5 percent in the next five years to touch around
1.68 million tonnes by FY 17 from 0.85 million in FY 11.
Similarly, international cargo is estimated to grow at an
average annual rate of 12.1 percent during the 12th
Plan period to reach 2.65 million tonnes by FY 17 from
1.50 million in FY 11. Overall, total cargo traffic is
expected to jump to 4.33 million tonnes by FY 177 .
Key challenges in the Aviation SectorDespite favorable demographics, the Indian carriers
have failed to translate the demand for air travel into
profits. For the year ended March 2012, 5 out of the 6
major airlines in India were incurring massive losses8.
India still remains significantly underpenetrated in the
civil aviation sector ‑ at present there are only 0.52
departures per 1,000 people in India and less than 2
percent of Indians travel by air each year. However, this
in itself offers a huge opportunity for the sector in a
country with a population of 1.2 billion and a rising
and upwardly mobile middle class9. The city wise
traffic breakup presented in Figure 7.3 shows that the
highest traffic comes from New Delhi Airport, which is
closely followed by Mumbai. With increased economic
activities across other metro cities, it is expected that
the rest of the country would see an equal traffic
throughput in the coming years.
However, India still remains underdeveloped in
aviation infrastructure, as it needs an overhaul to
match the increased traffic demand. The top five
airports account for approximately 65 percent of all
Indian air traffic. The lack of infrastructure has a direct
impact on the ability of the Indian airlines to
implement the success factors of the low cost carriers.
6 Planning Commission Work Group, 12th Five Year Plan (2012‑17) for Civil Aviation Sector, Page 12 7 Planning Commission Work Group, 12th Five Year Plan (2012‑17) for Civil Aviation
Sector, Page 20 8Article: "Kingfisher Air Q3 loss widens, fuel costs mount". February 16, 2012. 9 Bravia Capital Reports, The Current State of Indian Aviation: What Indian airlines need to
do to get back in the black, 2012 http://network.airfinancejournal.com/Post/The‑Current‑State‑of‑Indian‑Aviation‑What‑Indian‑airlines‑need‑to‑do‑to‑get‑back/6669/True
62
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0Domestic
FY 07
530
1,680
1,021
1,496
2,650
4,330
1,551
2,348
852
FY 11 FY 17 (Forecast)
International Total
Figure 7.2 ‑ Cargo Traffic at Airports (ʻ000 tn)
Source: Planning Commission Working Group Paper, Civil Aviation for the
12th Five Year Plan (2012‑17)
The lack of airports is one of the significant factors
leading to intense price competition for the Indian
airlines.
� Growth concerns ‑ If low GDP growth estimates
sustain over a long term, the aviation sector will
face similar growth concerns as well. Further,
macroeconomic factors like rising fuel prices,
lower currency valuation are also adversely
impacting airlines.
� Regulatory uncertainty in PPP investments ‑Policy paralysis, lack of political consensus in taking
the reform measures, lack of transparency in PPP
investments and instances of hostile approach
towards investors have heightened business risks
and adversely impacted investor appetite.
� Cost Drivers ‑ Apart from higher fuel costs, further
factors like higher taxes, higher airport charges
(e.g. at Delhi airport) are likely to impact the
airlines. Owing to rising fuel prices, Kingfisher had
to dissolve Kingfisher Red (its low cost carrier) and
the Indian government had to bail out Air India.
� Cargo industry challenges ‑ Bottlenecks in terms
of inadequate infrastructure and land for cargo
handling with highly concentrated air traffic
leading to tier 2 and tier 3 cities are being ignored.
Blockages with regards to linking road and
railways to the cargo and influencing the
movement of cargo are also inadequate leading
to poor movement of cargo through airports.
Amid such uncertainties surrounding the industry,
the silver lining is the proactive steps being
undertaken by the Government in bailing out the
private and public players who are in troubled waters.
While, Air India and Jet Airways have been the
biggest beneficiaries of the Governmentʼs pro‑
industry stand, recent reform measures in relaxing
FDI norms could be termed as a major confidence
building measure to revive investor appetite.
63
29.9mNEW DELHI
29.1mMUMBAI
12.0mCHENNAI
11.6mBANGALORE
9.6mKOLKATA
7.6mHYDERABAD
4.3mCOCHIN
4.0mAHMEDABAD
3.1mGOA
Figure 7.3 ‑ Total Passenger Number
Source: CAPA
Investment Opportinities Considering the sustained growth in aviation demand and an urgent requirement for aviation infrastructure, there
is a substantial scale of investment required. These investments give rise to different opportunities in many
projects, some of which are captured in Table 7.310:
10 The Secretariat for Infrastructure, PPP Projects Database (as on March 31, 2011 ) http://infrastructure.gov.in/pppprojects/index.php#aa
64
S.No. Projects in Pipeline State Project Cost in`crore (USD mn)
Ministry of Civil Aviation
1 Mopa Airport, Goa Central NI*
2 Navi Mumbai International Airport Central 9,970 (1,793)
3 Sindhudurg Airport, Maharashtra Central 307 (55)
4 Bijapur Airport Karnataka Central 24 (4)
5 Gulbarga Airport, Karnataka Central 14 (3)
6 Hassan Airport, Karnataka Central NI*
7 Simoga Airport, Karnataka Central 39 (7)
8 Kannur International Airport Central 1,130 (203)
9 Durgapur International Airport, West Bengal Central 280 (50)
10 Dabra Airport, Gwalior, Madhya Pradesh Central 193 (35)
11 Pakyong Airport, Sikkim Central 309 (56)
12 Paladi Ramsinghpur Airport, Rajasthan Central 121 (22)
13 Kushinagar International Airport, Uttar Pradesh Central NI*
14 Karaikal Airport, Pudduchery Central NI*
15 Green Airports at Nellore, Ongole,Tadepallygudem, Kurnool, Andhra NI*
Kothagudem, Ramagundam and Nizamabad (7 Airports) Pradesh
16 Ahmedabad ‑ Dholera International Airport Gujarat 2,500 (450)
22 Dr.Bhim Rao Ambedkar International Airport Uttar Pradesh NI*
23 Taj International Aviation Hub Uttar Pradesh NI*
Total (23 Projects) 16,652 (2,995)
Table 7.3 ‑ Projects in Pipeline and Under Implementation
* Not Indicated
Fourteen Greenfield PPP airports have been proposed
in the 12th Five Year Plan . Other than the proposed
Navi Mumbai airport, the rest are in non‑metro
locations, where even though the initial traffic is
expected to be quite low, the long term projections
reveal a high growth trend given the increased
spending of the emerging middle class population11.
Regulatory Framework� Relaxation of rules for External Commercial
Borrowing (ECB) by the Union Ministry of Finance in
Budget 2012‑13 for the aviation sector came as a
life saver to many ailing airlines. The external
borrowing under this provision would have a
ceiling of USD 1 billion for the sector, where the
cap for individual airline companies has been fixed
at USD 300 million.
� Proposal for formation of a Civil Aviation Aerospace
Promotion Advisory Council by the Ministry for Civil
Aviation, will accommodate members from various
regulatory agencies and the aerospace industry to
monitor the sector and its activities.
� 100 percent FDI allowed for greenfield airports; for
existing airports, Government approvals are
required for foreign investments above 74 percent.
11 Ministry of Civil Aviation, Government of India, Approach Paper on Economic Regulation of Airports in India, March 2012, Page 3
65
S.No. Projects Under Implementation State Project Cost in`crore (USD mn)
Ministry of Civil Aviation
1 IGI Airport at New Delhi Central 12,857 (2,312)
2 CSI Airport at Mumbai Central 10,453 (1,880)
3 Greenfield Airport at Mopa Goa 3,000 (540)
4 Dwarka Air port Project Gujarat 500 (90)
5 Gulbarga Minor Airport Karnataka 80 (14)
6 Shimoga Minor Airport Karnataka 80 (14)
7 Construction of Hasan Airport Karnataka 690 (124)
8 Construction of new greenfield Airport at Bellary Karnataka 141 (25)
9 Development of Minor Airport at Bijapur Karnataka 80 (14)
Total (9 Projects) 27,881 (5,015)
� 49 percent FDI by foreign airline operators allowed
in domestic airlines. Therefore, now global airlines
may invest up to 49 percent in the aviation sector.
As per the previous guidelines, only foreign entities
other than airlines were allowed to own, directly or
indirectly, an equity stake of up to 49 percent in
Indian carriers. This move is likely to benefit the
scheduled airline operators such as Jet Airways,
Indigo, Spice Jet, Kingfisher, Jet Lite, Go Air, Air India
etc., to raise much needed capital enabling a
healthy recapitalization.
Public Private PartnershipThe introduction of private participation into the
operations of airports has led to a breakthrough in the
Indian Aviation sector. India is witnessing significant
interest from both domestic as well as foreign
investors following the policy initiatives taken by the
Government of India to promote Public Private
Partnerships (PPPs) in building and operating airports.
While the four metro airports at Delhi, Mumbai,
Hyderabad and Bangalore are already being
developed through PPP, the continued inflow of
investment will depend on a comprehensive policy
and regulatory framework necessary for addressing
the complexities of PPP, balancing the interests of
users and investors. The transformation of rules must
be accompanied by a change in the institutional
mindset.
Opening a new chapter in Indian aviation ‑ the
Ministry of Civil Aviation recently gave clearance to set
up the country's first private airport in Kerala. Such
moves are likely to encourage many more private
companies to follow a similar model for Greenfield
project development.
In addition to PPPs for development and operation of
airports, the government has initiated a programme
for upgrading airport infrastructure in the public
sector. As a part of this initiative, the Airports Authority
of India (AAI) is undertaking the redevelopment and
expansion of metro airports at Kolkata and Chennai,
and at 35 non‑metro airports across the country.
The introduction of privateparticipation into the operations ofairports has led to a breakthrough inthe Indian Aviation sector. India iswitnessing significant interest fromboth domestic as well as foreigninvestors following the policyinitiatives taken by the Governmentof India to promote Public PrivatePartnerships (PPPs) in building andoperating airports.
66
“
”
8. Opportunities in the
Telecom SectorOverviewThe Indian telecom sector goes all the way back to the 1882,
when a 50‑line manual telephone exchange (first
operational land line) was commissioned in Kolkata, just 6
years after the invention of the telephone by Alexander
Grahan Bell. Since then Indian telecom has witnessed
significant transformation. Today, India is the second largest
telecom market in the world in terms of subscribers1. The
telecom subscriber base stood at 944.81 million in July 20122.
The Growth DriversGrowing demand and Tariffs reduction: The growth
in GDP has resulted in increased income, hence
increased consumer spending – a part of which is
attributed to the telecom sector. Also, high level of
competition has lead to price reduction and
increased affordability of mobile and land line calling
as well as other add on services such as GPRS etc. In
order to further expand the growth of the sector, the
government has reduced mobile phone tariffs
significantly in the recent past, bringing the cost
difference between calling through cell phones and
landlines negligible. The mobile service penetration
in the country is currently at 51 percent and is
expected to grow to 72 percent by 20164.
Mobile Value Added Services (MVAS): India's current
MVAS industry has an estimated size of USD 2.7
billion. The industry derives its revenues majorly from
products such as game applications, music
downloads and other add on services, forming close
to 80 percent of VAS revenues. The estimated growth
of Indian MVAS industry is upto USD 10.8 billion by
2015, with the next wave of growth in subscriptions
expected to come from semi‑urban and rural areas5.
Mobile Number Portability (MNP): MNP provides
ease of switching service providers to the subscriber,
while retaining their mobile numbers. Mobile
Number Portability requests increased from 41.88
million subscribers at the end of March 2012 to 45.89
million at the end of April 2012. In the month of April
2012 alone, 4.01 million requests have been made for
MNP6.
Rural Telecom – As of 2012, the rural base is
accounting for nearly half the total subscribers who
will have access to communication services.
According to a report presented by the Comptroller
and Auditor General (CAG), the growth rate of
subscribers in rural areas during the period of 5 years
from 2006 – 2011 was higher at 485 percent
compared to 233 percent in urban areas7.
1 Telecom Regulatory Authority of India, Telecom Sector in India: A Decadal Profil, Year 2012, Page 5 2 Telecom Regulatory Authority of India, Highlights on TelecomSubscription Data as on 30th June 2012, Page 1 3The Telecom Regulatory Authority of India (TRAI) 4Corporate Catalyst India, Report on Telecom Sector in India, 2012, Page 45 Corporate Catalyst India, Report on Telecom Sector in India, 2012, Page 4 6Corporate Catalyst India, Report on Telecom Sector in India, 2012, Page 47Comptroller and Auditor General (CAG) News Report: Rural telecom subscribers posted faster growth rate than urban users, August 31, 2012
JAMMU &KASHMIR
HIMACHALPRADESH
PUNJAB
HARYANA
RAJASTHAN
O R I S S A
MADHYAPRADESH
KARNATAKA
ANDHRAPRADESH
TAMILNADU
KE
RA
LA
MAHARASHTRA
GUJARAT
CH
HAT
RISH
GA
RH
WESTBENGAL
UTTAR PRADESHEAST
UTTARPRADESH
WEST
ASSAM
NORTH
EAST
BIHAR
NEWDELHI
MUMBAI
KOLKATA
AFGHANISTAN
SRILANKA
BAY OF BENGAL
ANDAMAN AND
NICOBAR
ISLANDS (INDIA)LAKSHADWEEP
(INDIA)
INIDIAN OCEAN
N E P A L
N
I N D I AMETRO
A
B
C
Figure 8.1 – Indiaʼs circles
68
The Telecom Regulatory Authority of India (TRAI) has
divided the market into 22 service areas known as
"circles." The circles are divided roughly in line with the
countryʼs 29 provinces, and are divided into four
categories. Service providers require a separate license
for each circle. Metro circles (major cities*): Mumbai, New
Delhi, Kolkata. A ‑ circles (regions that include other large
Chennai, in the southeast, was previously a separate
Metro circle, but as of March 31, 2008, it was integrated
into the Tamil Nadu A circle as a single entity. The service
providers and TRAI, however, continue to report monthly
connection numbers for Chennai separately 3.
This will further boost the countryʼs GDP through
consumer spending by a large margin.
Growth of Broadband: The broadband increase in the
ranks in subscriber numbers is expected to be the
driver for the next phase of Telecommunication
growth in India. Broadband subscribers, as a
percentage of total households, are expected to
reach 41 percent by 2022 from 10 percent currently8.
Growth in broadband has a direct impact on our
country's GDP by creating efficiency for society,
businesses and consumers. According to a study by
the Ericsson on effects of an increased broadband
speed on GDP, a 0.3 percent GDP growth in the OECD
region is equivalent to USD 126 billion. The study also
shows that additional doubling of the speed can
produce growth in excess of 0.3 percent9.
Key ChallengesHigh Competitiveness – Telecom service providers
have been under the pressure of intense competition
from global telecom giants. With at least 7
69
8UBS Investment Research, Global Equity research, India Mobile Sector, Year 2012, Page 5
9Ericsson, Study “Need for speed”, Year 2011, Page 2
Subscriptions* - mIn Mobile subscriptions - mIn subscribers1000
800
934.1
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 934.1 mIn wireless subscribers as of June 2012
Others142.86
Bharti Airtel187.3
Reliance154.6
Tata Tele80.23
BharatSanchar
98.28
IdeaCellular
117.2
VodafoneIndia153.7
400
200
600
Figure 8.2 – Indiaʼs mobile market overview
telecommunication companies in each segment and
up to 12 telecommunication companies in some
segments competing for market share, the Indian
telecom market is one of the most crowded mobile
markets globally (the average number of
telecommunication companies in most countries is
from 2 to 5). Large number of competitors is resulting
in aggressive pricing, and a decline in the industryʼs
key operating metrics: The Average Revenue per User
(ARPU) and the Average Rate per Minute (RPM). The
average ARPU in India stands at around USD 2 (March
2012) as against the estimated USD 63 for NTT
Docomo, Japan; USD 33 for Vodafone, UK; and USD
12 for China Mobile, China10.
The Regulatory Uncertainty – The past 2G
irregularities and the cancellation of the 2G licenses
by the Supreme Court have led to regulatory
uncertainty in the industry. Clarity is still awaited in
some key areas such as one‑time spectrum charge,
imposition of high spectrum renewal fees, reframing
of spectrum and legality of 3G roaming agreements.
Tower Industry – As of March 2012, it is estimated
that there are 358,996 telecom towers in India, with
an average occupancy ratio of 1.63x, excluding
tenancies from operators who cancelled 2G licenses11.
After a tremendous growth in 2010, the telecom
tower industry is now witnessing a slowdown.
Cancellation of telecom licenses in February 2012 has
once more influenced another telecom sector
segment, and is likely to lead to a loss of tenancies
across the board. Currently, some telecommunication
companies are also exploring the possibility of
divesting their equity stake in tower companies in
order to meet funding requirements.The largest
players in telecom tower industry are presented in
the Table 8.1 below
10Icra Rating Feature, Telecom Sector: Trends&Outlook, Year 2012, Page 211UBS Investment Research, Global Equity research, India Mobile Sector, Year 2012, Page 24
70
Towers QuantityIndus Towers 1,09,000
BSNL/MTNL 69,000
Relaiance Infratel 50,000
Bharti Infratel 33,000
Vion Networks 42,000
GTL Infrastructure 33,000
American Tower Corporation 10,000
Tower Vision 8,000
Others 22,000Source: Industry data as of March, 2012
Table 8.1 ‑ Telecom Towers
Rural India – Even though the rural segment is seen
as the next key growth driver for the telecom sector
in India, there are some challenges in order to
achieve that. For rural subscribers, pricing is going to
be a key driver. Another challenge is access to
extremely remote communities, with no significant
infrastructure.
Investment OpportunitiesThe total investment expected during the 12th Five
Year Plan would be about ` 6,50,000 crores (USD 117
billion), out of which the Central sector investment
would be about ` 1,10,000 crores (USD 20 billion) and
investment from the private sector is estimated at
approximately ` 5,40,000 crores (USD 97 billion).
Investment Key Objectives:� One Nation, One License Policy ‑ Unified Licensing
Regime, Mobile Number Portability and Free
Roaming. It is this unified license regime across
services and telecom circles that would result in
the merging of all the telecom circles and would
enable operators to provide any service including
voice, data, video, broadband etc. Moreover,
country‑wide number portability and free roaming
would benefit the customers immensely.
� Increase rural teledensity ‑ 39 percent to 60
percent by 2017 and 100 percent by 202012.
� To provide broadband on demand by 2015 and to
achieve 175 million and 600 million broadband
connections by 2017 and 2020 respectively at a
minimum 2 Mbps download speed13.
� Promote domestic production oftelecommunication equipment to meet 80
percent of Indian telecom sector demand by 2020,
with a minimum value addition of 45 percent and
65 percent by the year 2017 and 2020
respectively14.
Regulatory FrameworkThe Cabinet has given its approval for the National
Telecom Policy (NTP) 2012. The Policy directs new
71
12 Icra Rating Feature, Telecom Sector: Draft National Telecom Policy 2011, Page 1 13Ministry of Communications&IT, Department of Telecommunication, National Telecom
Policy 2012, Page 5 14Ministry of Communications&IT, Department of Telecommunication, National Telecom Policy 2012, Page 5
initiatives, which includes free roaming, unrestricted
Net telephony and a new unified licensing regime for
operators. The policy also endorses a boost to
broadband expansion and an increase in local
manufacturing of telecom equipment.
The First Public Private Partnership in the TelecomSector ‑ The National Science and Technology
Entrepreneurship Development Board (NSTEDB), the
Department of Science and Technology (DST),
Government of India, Technopark and MobME
Wireless have joined forces to set up the Startup
Village ‑ Indian Telecom Innovation Hub in Kerala. The
telecom business incubator is a step to support new
product initiatives, and further turn them into
successful ventures.
Green Telephony ‑ TRAI is aiming to achieve carbon
emission reduction under which operators are
directed to achieve carbon reduction to the extent of
5 percent by 2012‑13, 12 percent by 2016‑17 and 17
percent by 2018‑19. Furthermore, at least 50 percent
of all rural towers and 20 percent of all urban towers
are to be powered by hybrid power by 2015.
FDI Policy in Telecom ‑ Foreign Direct Investment
(FDI) in the telecom sector during April‑March 2011‑
12 stood at USD 1,997 million. FDI is further limited to
74 percent in telecom services subject to the
following conditions15:
� This is applicable in case of Basic, Cellular, Unified
Access Services, National/ International Long
Distance, V‑Sat, Public Mobile Radio Trunked
Services (PMRTS), Global Mobile Personal
Communications Services (GMPCS) and other
value added services.
� Both direct and indirect foreign investment in the
licensee company shall be counted for FDI ceiling.
entities. In any case, the 'Indian' shareholding will
not be less than 26 percent.
� FDI up to 49 percent is on the automatic route
and beyond that on the Government route.
� FDI in the licensee company/Indian
promoters/investment companies including their
holding companies shall require approval of the
Foreign Investment Promotion Board (FIPB) if it
has a bearing on the overall ceiling of 74 percent.
While approving the investment proposals, FIPB
shall take note that investment is not coming from
countries of concern and/or unfriendly entities.
� The investment approval by FIPB shall envisage
the conditionality that the Company would
adhere to license agreements.
� FDI shall be subject to laws of India and not the
laws of the foreign country/countries.
15 Corporate Catalyst India, Report on Telecom Sector in India, 2012, Page 6
72
Despite a sense of pessimismsurrounding the industry, Indian telecom is stillgoing strong as it continues to look atinnovative business solutions and explorenew avenues. Coming out of a difficult phaseof tedious regulatory mechanism anduncertainty over the spectrum, the industry isnow all set to transform itself rapidly with thechanging needs and desires of thecustomers.
“
”
9. Opportunities in the
Mining SectorOverviewIndia is known to have the oldest and richest
history in the mining sector, with meteorological
evidence dating back to more than 6000 years
(around the era of the Harappan Civilization).
However it is only in the recent decades, close to
independence that mineral production was
quantified and given national/global recognition.
74
1http://www.investindia.gov.in/?q=mining‑sector, Mining‑Sector Overview, Paragraph 5 2Challenges for the Indian Mining in 21st Century, Page 63 3Link: http://mines.gov.in/ls/USQ‑3917.pdf, Annexure, Table, Page 2 4http://en.wikipedia.org/wiki/Mines_and_Minerals_(Regulation_and_Development)_Act_1957 5Annual Report 2012, Ministry of Mines 6Annual Report 2011, Ministry of Mines 7 Link: www.commodityonline.com, Article: India minerals productiongrows 2.15%Y‑o‑Y in February, Paragraph 2
Over the last six decades, the total value of mineral
production has grown exponentially from a mere
USD 25 million in the 1950ʼs to an estimated USD
41.79 billion in 20111.
At the time of independence, there were 1977
working mines2 (excluding petroleum, atomic and
minor minerals), which has gone up to 3677 working
mines in the year 20113.
Mining in India is regulated under the regulation of
the Mines and Minerals (Regulation and
Development) Act, 1957 which has been redrafted in
20094. Under this Act, all minerals are owned by the
constituent states, but are administered by the
Central Government. Mining royalties and taxes,
although set and revised by the Central Government,
are paid directly to the individual States.
The Mining industry is administered by the Ministry of
Mines, which is responsible for geological surveys,
exploration, and administration of the Mines and
Minerals Act for all minerals except mineral fuels. India
is endowed with huge deposits of minerals which are
non‑renewable and finite in nature such as diamond,
coal, manganese, iron ore, bauxite, lead, copper, zinc,
gold and limestone. These minerals are critical raw
materials for many industries such as steel, power,
aluminum etc. Therefore, it contributes to the countryʼs
export earnings significantly giving the nationʼs
economy a competitive advantage on a global scale.
The ratio of the actualization from the mining industry
to the direct and indirect output in the economy is
measured at 2 : 4, thus making a substantial
contribution to the growth of the economy.
The Indian mineral reserves are flush with 87
valuable kinds of minerals, which include 4 fuel, 10
metallic, 47 non‑metallic, 3 atomic and 23 minor
minerals (including building and other materials)5.
Despite the challenges of realizing the full potential of
these abundant resources, the global position of India
in terms of production of key minerals is seen below
in Table 9.16.
Historically, the mining and quarrying sector in India
has been on an upward trajectory and continues to
do so . The Index has risen 2.15 percent year‑on‑year
in February 2012 and the six minerals listed below in
table 9.2 together contributed about 95 percent of
the total value of `16,566 crore (USD 2,979) of mineral
production in February 20127.
Table 9.1 ‑ Indiaʼs Mineral production ranked globally.
Table 9.2 – Total Value of Mineral Production(excluding atomic & minor minerals)
Source: Strategic Plan for Mines, Ministry of Mines, Goverment of India
Source: Table prepared based on information derived from article ʻIndia
Minerals Production grows 2.15% Y‑o‑Y in February
www.commodityonline.com.
Value of Mineral Production ‑ Feb, 2012
Category Value in ` Cr (USD mn)
Coal 5,480 (986)
Petroleum (Crude) 5,406 (972)
Iron Ore 2,743 (493)
Natural Gas (utilized) 1,320 (237)
Lignite 436 (78)
Limestone 311 (56)
Mineral Global Share of Globalproduction (%) Rank
Chromite 17.1 2nd
Barytes 17.3 2nd
Coal &Lignite 7.9 3rd
Iron Ore 9.8 4th
Manganese Ore 6.7 5th
Steel (Crude/Liquid) 4.3 5th
Bauxite 7.3 6th
Aluminium 3.4 8th
Copper 2.8 11th
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8 Strategy Paper Ministry of Mines November 2011
It must be noted that the contribution of the Indian
mining industry to Indiaʼs GDP is persistently low as
compared to other resource rich nations such as
Brazil, South Africa, Australia and China. The mining
sectorʼs contribution to GDP in 2010 was at meager
1.2 percent, which is significantly lower than China,
Brazil and Australia.
The Growth DriversThe mining sector on the whole is undergoing a
major transformation over the recent years. A lot of
this is attributed to the growing demand of energy
and power. In order to meet this growing demand,
the Government has liberalized the National Mineral
capital, investment banking, insurance broking etc.
It has also innovated new concepts in the telecom
tower business, roads, power, ports, SEZs and others.
In 2010, Srei announced the amalgamation with
Quippo Infrastructure Equipment Limited to build up
a much larger institution, better placed to capitalise
on the fast growing infrastructure opportunities on
offer. Following the amalgamation, Srei was able to
expand the spectrum of its services to high growth
verticals of Construction, Oil & Gas, Telecom and
Energy. In the same year, Srei also forayed into the
power sector through the investment in a utility ‑
Dishergarh Power Supply Corporation (DPSC), one
of Indiaʼs oldest power transmission and distribution
company.
Sahaj e‑Village is another unique business model that
attained immense scalability in a very short time
period. Under the National e‑Governance Plan of the
Government of India, this initiative is today the largest
rural IT infrastructure initiative in India with 28,000
Common Service Centres catering to approximately
280 million people and provides various B2B, B2C, G2C
services along with e ‑ learning courses.
By adopting such organic and inorganic growth
strategies, Srei has emerged as one of the largest
holistic infrastructure institutions in India, present
across the entire value chain. Thus, what started off as
a modest initiative in 1989, gradually emerged into a
large conglomerate. Today with its headquarters in
Kolkata, the company enjoys a pan‑India presence
with almost 90 offices, staff strength of over 8000 and
consolidated assets under management of USD
10 billion.
Leveraging its scale, experience, spread, portfolio and
alliances, Srei has been constantly working as an
invisible hand driving the national economy –
financing infrastructure equipment and projects,
83
helping entrepreneurs and the Government with
advice and funding, building one of the largest
Telecom tower base, to servicing millions in rural
India.
Srei, an unseen hand, has managed to position itself
as the largest equipment financing company in India,
the largest independent telecom tower company
with industry leadership tenancy of 2.4X, one of the
top five road developers and now one of the oldest
power utility companies in India with a T&D loss of
3.25 against the country average of 25 percent.
Indian infrastructure sector isgoing through a significanttransformation. Investment ininfrastructure is envisaged to bedoubled to USD 1 trillion during the 12thFive Year Plan and about half of this istargeted to be achieved through privatesector investment
“
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84
From a macro and microperspective, the Indian infrastructureis a “bang-on” investmentdestination for any overseascompany seeking high and longterm returns. The key, however, is toidentify and work with the right localpartner.