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THE INDIAN INFRASTRUCTURE
SECTOR: INVESTMENTS,
GROWTH AND PROSPECTS
January 2013
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........................................................................................................................
FOREWORD .................................................................................................................................. 3
2. WAY FORWARD - 2012-13 UNION BUDGET, AND APPROACH TO 12TH FIVE
.................................................................................................................................. 9
CONTENTS
1. INDIA'S PAST AND CURRENT FOCUS ON INFRASTRUCTURE DEVELOPMENT .............. 4
1.1 Electricity ............................................................................................................................... 5
.................................................................................................................................14
2.1 How 2012-13 Union Budget benefits Indian infrastructure sector ................................... 9
2.2 Approach to 12th Five Year Plan and other government initiatives
YEAR PLAN
...................................10
3. CONCLUSION
1.2 Roads...................................................................................................................................... 6
1.3 Telecommunications............................................................................................................. 6
1.4 Railways ................................................................................................................................. 6
1.5 Airports and Ports ................................................................................................................. 7
................................................................................................. 71.6 Water Supply and Irrigation
................................................................................................................ 81.7
Summary Analysis
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FOREWORD
The development of a country’s infrastructure is vital to the growth
of its sectors and the overall economy. India’s infrastructure
facilities, including transport, sanitation and electricity, are still
estimated to be inadequate for its population, thereby presenting achallenge for sustainable economic growth in sectors such as heavy
manufacturing. This research paper therefore analyses the
Government’s focus on infrastructure, and key factors that are
expected to ensure a strong growth in years to come.
The infrastructure sector primarily comprises of electricity, roads,
telecommunications, railways, irrigation, water supply and
sanitation, ports and airports, storing facilities, and oil and gas
pipelines.1
Recognising the adverse implications of poor development in some
of these sub-segments, the Indian government has significantly
increased its infrastructure spending over the last 10 years. It is also
proactively encouraging private sector investment, to speed up
development. This move has enabled many private sector
companies to intensify their focus on the development of urban
infrastructure.2,3 In addition, the Indian government has taken up
many large scale infrastructure ventures such as the Delhi–
Mumbai Industrial Corridor, for which the government has
collaborated with Japan for financial and technical support.4
This research report aims to analyse the link between public and
private investments in the infrastructure sector, and infrastructure
projects, vis a vis the performance of the Indian economy. It
provides a perspective about the Indian government’s focus on
infrastructure development over the last decade, along with policies
and initiatives introduced to boost development. The report also
provides an analysis of the actual and projected data from the 10th
and 11th Five Year plans, and identifies areas that have faced deficits
or made investment gains, and the associated reasons.
1 Planning Commission 2 Economic Times – Analyst Views on Infrastructure Sector 3 Economic Times – Union Budget has Potential for Infrastructure 4 Delhi Mumbai Industrial Corridor
http://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://delhimumbaiindustrialcorridor.com/http://delhimumbaiindustrialcorridor.com/http://delhimumbaiindustrialcorridor.com/http://delhimumbaiindustrialcorridor.com/http://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdf
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1. INDIA’S PAST AND CURRENT FOCUS ON INFRASTRUCTUREDEVELOPMENT
Given the fact that strong infrastructure facilities form the backbone of a nation’seconomy, the Indian government began to shift its focus to infrastructuredevelopment, as was evident from the 10th and 11th Five Year plans. During thisperiod, the Planning Commission identified inadequate infrastructure as asignificant barrier to economic growth. It persuaded the government to undertakeinitiatives such as public private partnerships (PPPs), to draw private sectorinvestments into the infrastructure sector. This move has benefited several
infrastructure companies, and has consequently renewed their interest inundertaking large scale infrastructure projects within the country.5 Infrastructureinvestments are expected to double from Rs 9,19,225 crore (US$ 169.9 billion)during the 10th Five Year Plan (2002–07) to Rs 20,54,205 crore (US$ 379.6 billion)during the 11th Five Year Plan (2007–12).6
Figure 1 represents a simple comparative analysis of both the proposed andactual (or projected) infrastructure investments in the 10th and 11th Five Yearplans. The mid term appraisal of the 11th Five Year Plan revealed that some subsectors, such as telecommunications, will exceed their investment targets byapproximately 33 per cent, while other sectors, such as roadways, railways andports, will see a notable deficit in expected investments.
Figure 1Investments in infrastructure by sector, 10th and 11th plans (in US$ billion
at 2006–07 prices)
Source: Planning Commission
5 The Economic Times – Analysts' views on the infrastructure sector 6 Planning Commission
Original Projections Actual Investments Original Projections Revised Projections
11th Plan10th Plan
Electricity
Roadways
Telecom.Railways
Irrigation
Water Supply
Ports
Airports
Storage
Oil & Gas
33.5%
16.6%
11.9%13.7%
12.8%
7.4%
1.6%
0.8%
0.6%
1.1%
37%
13.8%
11%11.1%
13%
6.5%
2.5%
0.8%
0.6%
3.5%
30.4%
15.3%
12.6%12.7%
12.3%
7%
4.3%
1.5%
1%
0.8%
32%
13.6%
16.8%9.8%
12%
5.4%
2%
1.8%
0.4%
6.2%
Figures in US$ billion
Rs 8,71,445 crore
US$ 164.3 billion
Rs 9,19,225 crore
US$ 173.3 billion
Rs 20,56,150 crore
US$ 387.7 billionRs 20,54,205 crore
US$ 387.3 billion
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Though high investments were proposed in the 11th Five Year Plan, efficientproject execution is the key for infrastructure projects. The average rate ofawarding planned projects was about 70 per cent until 2009, with 60 per cent ofthe projects facing cost over runs7.
Taking into account the rapid urbanisation expected in the next two decades, itbecomes imperative to analyse bottlenecks to growth in the infrastructure sector,and forming strategies and policies to mitigate them. The next sections include ananalysis of each sub sector in the infrastructure sector. The sections also coverthe developments and projects initiated or completed during the 11th Five YearPlan. A summary of projects that were either implemented or completed in thecentral sector as on 31st March 2011 is given below.
Table 1PPP projects completed or implemented in the central sector
(cost in Rs crore)
SectorCompleted Implemented
Number Cost Number Cost
NationalHighways 55 20,139 127 103,455
Major
Ports
29 9,677 20 34,138
Airports 3 5,883 2 23,310
Railways 5 1,166 4 2,363
Total 9236,865 crore
(US$ 6.9 billion)153
1,63,266 crore
(US$30.8 billion)Source: Secretariat for Infrastructure
1.1
Electricity
As per Figure 1, the revised projections for investments in electricity aremarginally lower than the original projections, primarily because of lowercontribution from the public sector. On the other hand, private sector investmentincreased 55 per cent from the initial estimates.8
The government has liberalised its policies to facilitate 100 per cent FDI in allsegments of the power sector, including power trading. This is expected toincrease private sector investments approximately 40 per cent during the 12thFive Year Plan.9
7 McKinsey analysis 8 Planning Commission – The mid term appraisal of the 11th Plan 9 CFI India
http://infrastructure.gov.in/pppprojects/index.phphttp://infrastructure.gov.in/pppprojects/index.phphttp://infrastructure.gov.in/pppprojects/index.phphttp://www.mckinsey.com/locations/india/mckinseyonindia/pdf/Building_India_Executive_Summary_Media_120809.pdfhttp://www.mckinsey.com/locations/india/mckinseyonindia/pdf/Building_India_Executive_Summary_Media_120809.pdfhttp://www.mckinsey.com/locations/india/mckinseyonindia/pdf/Building_India_Executive_Summary_Media_120809.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://evs08fls04/SEZ-BR1/R-Data/Bhavya/CAPS-15/Vani%20Jain/IBEF/Sectors/Infrastructure/1st%20Draft%20%E2%80%93%20Post%20Editorial/cfiindia.com/wp-admin/upimg/Power%20News,%20Analysis.dochttp://evs08fls04/SEZ-BR1/R-Data/Bhavya/CAPS-15/Vani%20Jain/IBEF/Sectors/Infrastructure/1st%20Draft%20%E2%80%93%20Post%20Editorial/cfiindia.com/wp-admin/upimg/Power%20News,%20Analysis.dochttp://evs08fls04/SEZ-BR1/R-Data/Bhavya/CAPS-15/Vani%20Jain/IBEF/Sectors/Infrastructure/1st%20Draft%20%E2%80%93%20Post%20Editorial/cfiindia.com/wp-admin/upimg/Power%20News,%20Analysis.dochttp://evs08fls04/SEZ-BR1/R-Data/Bhavya/CAPS-15/Vani%20Jain/IBEF/Sectors/Infrastructure/1st%20Draft%20%E2%80%93%20Post%20Editorial/cfiindia.com/wp-admin/upimg/Power%20News,%20Analysis.dochttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://www.mckinsey.com/locations/india/mckinseyonindia/pdf/Building_India_Executive_Summary_Media_120809.pdfhttp://infrastructure.gov.in/pppprojects/index.php
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Further, the addition of power generation capacity is likely to show a deficit ofclose to 20,000 MW with a capacity of only 58,000 MW likely to be achieved by theend of the 11th plan8,9 primarily due to unforeseeable reasons, such as floods andlocal agitations.
1.2
Roads
The projected investment in roadways is pegged at Rs 2,78,658 crore (US$ 51.5billion), approximately 11 per cent lower than the original projection. The reasonfor this decrease is the inability of the National Highway Authority of India (NHAI)
to award an adequate number of projects during the first half of the 11th Five YearPlan period.8 In addition, many PPP projects did not find bidders due to concernsregarding feasibility and unreasonable eligibility criteria. For example, companiesselected for eight or more projects were not allowed to bid for the third phase ofthe National Highway Development Project.7
Despite these shortfalls, the central government launched a scheme, PradhanMantri Gram Sadak Yojna, to invest in the roadways sector, at the beginning of thelast decade. The scheme aims to connect all villages with a population of morethan 500 and 250 persons in plain and hilly areas, respectively.8,10 During the 11thFive Year Plan, the government completed the Golden Quadrilateral project andthe East-West-North-South Links, started in the 10th Five Year Plan.11
1.3 Telecommunications
The telecommunications sector performed fairly well during the 11th Five YearPlan, and is expected to reach Rs 344,921 crore (US$ 63.7 billion) by the end of2012, at a yoy growth rate of over 26 per cent.12
The projected investment in the 11th Five Year Plan increased 34 per cent fromthe original projection. This increase was primarily because of huge cash inflowfrom the private sector and stiff competition, which brought down costs andimproved quality.8
1.4 Railways
Investments in railways are expected to exhibit a deficit of more than 23 per centfrom the original projections by the end of the 11th Five Year Plan. However, thegovernment is taking significant initiatives, such as PPP projects in the railwayssectors, some of which have already materialised or are in the pipeline.
10 Pradhan Mantri Gram Sadak Yojna 11 Planning Commission – Approach to the Twelfth Plan 12 Business Review India
http://rural.nic.in/sites/downloads/right-information-act/03_CIC_Part_3_PMGSY_F.pdfhttp://rural.nic.in/sites/downloads/right-information-act/03_CIC_Part_3_PMGSY_F.pdfhttp://rural.nic.in/sites/downloads/right-information-act/03_CIC_Part_3_PMGSY_F.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://www.businessreviewindia.in/technology/software/-telecom-industry--indias-success-storyhttp://www.businessreviewindia.in/technology/software/-telecom-industry--indias-success-storyhttp://www.businessreviewindia.in/technology/software/-telecom-industry--indias-success-storyhttp://www.businessreviewindia.in/technology/software/-telecom-industry--indias-success-storyhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://rural.nic.in/sites/downloads/right-information-act/03_CIC_Part_3_PMGSY_F.pdf
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Examples of PPP projects in railways are as follows:8
Modernising 50 identified train stations
Developing a 60 kilometre long elevated rail system in Mumbai
Constructing metro rail systems in Delhi, Mumbai, Hyderabad, Kolkata13 andChennal13, and launching the High Speed Rail Project in Bengaluru.
1.5 Airports and Ports
Investment in the airports sector has marginally exceeded expectations, with theprivate sector accounting for 64 per cent of the investments. These investmentsreceived a significant boost due to the Bengaluru, Delhi and Hyderabad airportprojects.14
Additional initiatives for development are as follows:13
Upgrade 35 city airports through PPP initiatives
Upgrade airports in metro and non metro cities in collaboration with Airports
Authority of India, which is investing approximately Rs 15,673.5 crore (US$ 2.9billion)
Inaugurated India’s first aerospace SEZ, costing Rs 165.7 crore (US$ 30.6million), in Belgaum, Karnataka
In case of the ports sector, actual investment is 50 per cent less than theexpected investment, primarily because there were few PPP projects in thesector.11, 14
1.6 Water Supply and Irrigation
Irrigation solely remains under the control of the public sector; however, the 11thFive Year Plan has considered drawing private investments of up to 2 per cent inwater supply.14
13 Indo Italian Chamber of Commerce 14 Planning Commission – Mid term appraisal of the 11th Plan
http://www.centroesteroveneto.com/pdf/Osservatorio%20Mercati/India/Ricerche%20di%20Mercato/2010/Infrastructure%20%20Final%20Rep_10.02.10.pdfhttp://www.centroesteroveneto.com/pdf/Osservatorio%20Mercati/India/Ricerche%20di%20Mercato/2010/Infrastructure%20%20Final%20Rep_10.02.10.pdfhttp://www.centroesteroveneto.com/pdf/Osservatorio%20Mercati/India/Ricerche%20di%20Mercato/2010/Infrastructure%20%20Final%20Rep_10.02.10.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://www.centroesteroveneto.com/pdf/Osservatorio%20Mercati/India/Ricerche%20di%20Mercato/2010/Infrastructure%20%20Final%20Rep_10.02.10.pdf
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1.7 Summary Analysis
As per the trends observed during the 10th and 11th Five Year plans, private sectorinvestments are driving the country’s infrastructure growth. Figure 2 shows thatprivate sector investment as a percentage of GDP has increased from 1.7 per centto 3.3 per cent in the 11th Five Year Plan, to reach approximately Rs 7,42,912 crore(US$ 137 billion).
Figure 2Investment in infrastructure as a percentage of GDP
(in Rs crore, 2006–07 prices)
Source: Planning Commission
As shown in Figure 3, telecommunications and roadways are performing better interms of drawing private sector investments, while the electricity sub sector alsoexhibited a rise.
Figure 3Percentages of centre, state and private investments in key
infrastructure sub sectors
Source: Planning Commission
4.1% 4.2% 4.8% 4.9% 5.0% 5.1%
1.7% 2.2%2.4% 2.6% 2.9%
3.3%
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2006-07 2007-08 2008-09 2009-10F 2010-11F 2011-12F
T o t a l G D P i n R s c r o r e
I n v e s t m e n t s a s P e r c e n t a g e o f G D P
Public Private Total GDP
5.71%
6.44%7.18%
7.51%7.94%
8.37%
CAGR – FY07-FY12F (Private): 19.7%
CAGR – FY07-FY12F (Public): 10.7%
30% 32%40%
33%
47%
18%
97% 91%
30% 24%
53% 51%
0% 0%2% 5%
40% 44%
7%16%
53%
82%
1%4%
0%
20%
40%
60%
80%
100%
120%
Center State Private
Electricity Roadways Telecom. Railways
X Plan XI Plan X Plan XI Plan X Plan XI Plan X Plan XI Plan
Note: Total investment is noted in bold
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2. WAY FORWARD – 2012–13 UNION BUDGET, AND APPROACHTO 12TH FIVE YEAR PLAN
According to experts, spending on the sector needs to increase to more than 10per cent of GDP by 2017 to achieve and sustain 8 to 9 per cent economic growth.15 Figure 4 represents projections data for the 12th Five Year Plan as released duringthe mid term appraisal of the 11th Five Year Plan.
Figure 4Projected investments in infrastructure in the 12th Five Year Plan
(Rs crore at 2006–07 prices)
Source: Planning Commission
In line with the 10th and 11th plans, infrastructure continues to be a focus area forthe government, and experts envisage a total investment of approximately US$ 1trillion in India’s infrastructure sector during the 12th Five Year Plan. Of thisamount, 50 per cent is expected to come from the private sector in the form ofboth debt and equity.16
Since such large scale investments are expected to come from the private sector,the Indian government’s 2012–13 Union Budget strives to make the environmentmore investor friendly.
2.1
How 2012–13 Union Budget benefits Indian infrastructure sector
Infrastructure remains a key sector for the Indian economy, which was re-emphasised by the former Finance Minister, Mr Pranab Mukherjee, when hestated that the country needs to focus on a domestic demand driven growthrecovery, which can be achieved through infrastructure and industrial
15 The Economic Times – India needs to raise infrastructure spend to 10 per cent of GDP 16 OIFC report – Infrastructure sector
5.3 6.27.1 8.1
9.2 10.4
41
8.4%
9.0%9.5% 9.9%
10.3% 10.7%
9.5%
4
9
14
19
24
29
34
39
44
0%
2%
4%
6%
8%
10%
12%
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Total
Investments (INR Hundred Thou sand Crore) Rate of G DP Growth
Investments ( % GDP)
' 0 0 , 0
0 0 c r o r e
Constant GDP Growth of 9%
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development.17,18,19. For this purpose, the 2012–13 Union Budget allowed financialinstitutions to raise Rs 60,000 crore (US$ 11 billion) from tax free bonds, up Rs30,000 crore (US$ 5.5 billion) from the previous year’s budget, to invest in theinfrastructure sector.
Figure 5Structure of investments proposed in the 2012–13 Union Budget
Source: The Economic Times
To encourage more private players to invest in the sub sectors, the governmentadded irrigation, terminal markets, and oil and gas storage facilities to the list ofsectors eligible for Viability Gap Funding (VGF).20
Also, the government launched the first Infrastructure Debt Fund, valued at Rs8,000 crore (US$ 1.5 billion). The fund was formed in21 partnership with ICICIBank, Bank of Baroda, Citibank and Life Insurance Corporation of India, to investin PPP infrastructure projects that are operational for more than one year.22
2.2 Approach to 12th Five Year Plan and other governmentinitiatives
The government plans to draw an even mix of public and private sectorinvestments in the 12th Five Year Plan through PPP and other initiatives.23 Anumber of PPP projects were initiated at both the centre and state levels duringthe 10th and 11th Five Year Plans, most of which are already completed.
17 The Economic Times – Union Budget has potential for infrastructure 18 The Economic Times – Union Budget has potential for infrastructure 19 The Economic Times – Analysts' views on the infrastructure sector20 The Hindu 21 India Budget 22 IndianExpress 23 Planning Commission – Approach to the 12th Plan
10,000
10,000
10,00010,000
5,000
5,000
5,000
5,000
National Highway Authority of India
Indian Railway Finance Corporation Ltd.
India Infrastructure Finance Corporation
Ltd.Power
National Housing Bank
Small Industries Development Bank of
IndiaPorts
Housing and Urban Development
Corporation Ltd.
Figures in Crore
Total: Rs 60,000 crore
US$ 11.3 billion
http://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://www.thehindubusinessline.com/companies/article3003336.ecehttp://www.thehindubusinessline.com/companies/article3003336.ecehttp://www.thehindubusinessline.com/companies/article3003336.ecehttp://indiabudget.nic.in/ub2012-13/bh/bh1.pdfhttp://indiabudget.nic.in/ub2012-13/bh/bh1.pdfhttp://indiabudget.nic.in/ub2012-13/bh/bh1.pdfhttp://www.indianexpress.com/news/govt-launches-2-bn-infra-debt-fund/920544/http://www.indianexpress.com/news/govt-launches-2-bn-infra-debt-fund/920544/http://www.indianexpress.com/news/govt-launches-2-bn-infra-debt-fund/920544/http://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://www.indianexpress.com/news/govt-launches-2-bn-infra-debt-fund/920544/http://indiabudget.nic.in/ub2012-13/bh/bh1.pdfhttp://www.thehindubusinessline.com/companies/article3003336.ecehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bondshttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201565_1_infrastructure-investment-union-budget-basic-infrastructurehttp://articles.economictimes.indiatimes.com/2012-03-16/news/31201360_1_infrastructure-sector-infrastructure-investment-tax-free-bonds
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Table 1 represents information obtained from the secretariat for infrastructure onPPP projects in the central sector, as on 31 March 2011.
Table 2PPP projects in the pipeline in the central sector (cost in Rs crore)
SectorPipeline Total (including completed)
Number Cost Number Cost
NationalHighways
60 52,573 242 176,167
MajorPorts
24 16,964 73 60,779
Airports 14 12,387 19 41,580
Railways 6 95,535 15 99,064
Total 1041,77,439 crore
(US$ 33.4 billion)349
3,77,590 crore
(US$ 71.2 billion)Source: Secretariat for Infrastructure
Public Private Partnerships (PPPs)
PPPs have traditionally been formed to enhance the productivity and
efficiency of infrastructure development activates. This is an instrument to
draw significant private sector investments. The primary advantage of PPPs
over traditional public procurement is efficiency gains in terms of both time,
and cost.
The transportation sector sees the maximum number of PPPs at both the
centre and state levels. The major PPP projects, completed or undertaken,
include four airport projects in Delhi, Mumbai (Maharashtra), Bengaluru(Karnataka) and Hyderabad (Andhra Pradesh); four major power projects in
Sasan (Madhya Pradesh), Mundra (Gujarat), Krishnapatnap (Andhra
Pradesh), Tilaiya (Jharkhand); a power transmission project in Jhajjar
(Haryana); and 298 national and state highway projects, including the four
laning of 10,000 kilometres of high density highways.
These projects are normally awarded through the build, operate and
transfer (BOT) model.
Source: Planning Commission – Approach to the 12th Plan, PPP India
http://infrastructure.gov.in/pppprojects/index.phphttp://infrastructure.gov.in/pppprojects/index.phphttp://infrastructure.gov.in/pppprojects/index.phphttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://pppinindia.com/sector-highways.phphttp://pppinindia.com/sector-highways.phphttp://pppinindia.com/sector-highways.phphttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://infrastructure.gov.in/pppprojects/index.php
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The central government focuses on the development of national highways, whilethe state government focuses on the development of roads and urbaninfrastructure. With the help of PPPs, the state government has completed 340projects, with 432 in the implementation stage and about 850 in the pipeline, at anet project cost of Rs 7,20,597 crore (US$ 133 billion).24
The government has launched many policy initiatives to standardise processesand streamline the awarding of PPP projects, thereby making privateparticipation easier. Some of these initiatives are as follows:
Cabinet committee on infrastructure25
: The Cabinet Committee onInfrastructure was formed in 2009, with the Prime Minister as its chairman.The primary objectives of this committee are as follows:
o Approve or disapprove all proposals valued at more than Rs 150 crore(US$ 28 million), covering the infrastructure sector
o Formulate policies and decide on measures to enhance investmentsby increasing private sector participation
o Ensure the progress of ongoing infrastructure projects, and evaluatethe performance of infrastructure sub sectors
Viability Gap Funding VGF)
26,27
: Some projects are beneficial for the economyand promote trade but are non profitable for private companies. VGF is ascheme under which the government invests up to 40 per cent (of which, upto 20 per cent comes from the central government and 20 per cent from thestate government and associated ministries) of the total project cost to makethese projects viable for the private sector under the PPP route. Thegovernment also encourages competitive bids in such projects and awardsprojects to companies that require the least VGF support. This scheme helpsthe government leverage public and private resources to fund large scaleinfrastructure projects, thereby speeding up development.
Empowered Committee/Institution EC/EI)28
: The government set up the ECand the EC in 2005, primarily to support PPPs in the infrastructure sector.
o Empowered Committee (EC): The EC is constituted by secretariesfrom the Department of Economic Affairs, the Planning Commission,Expenditure, and the line Ministry dealing with the particular project.
24 Secretariat for Infrastructure25 Cabinet Committee on Infrastructure 26 The Economic Times
27 Planning Commission – Mid term appraisal of the 11th Plan 28 PPPIndia – Notification
http://infrastructure.gov.in/pppprojects/index.phphttp://infrastructure.gov.in/pppprojects/index.phphttp://www.pib.nic.in/newsite/erelease.aspx?relid=50167http://www.pib.nic.in/newsite/erelease.aspx?relid=50167http://www.pib.nic.in/newsite/erelease.aspx?relid=50167http://articles.economictimes.indiatimes.com/2010-03-25/news/28485357_1_viability-gap-funding-vgf-infrastructure-projectshttp://articles.economictimes.indiatimes.com/2010-03-25/news/28485357_1_viability-gap-funding-vgf-infrastructure-projectshttp://articles.economictimes.indiatimes.com/2010-03-25/news/28485357_1_viability-gap-funding-vgf-infrastructure-projectshttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://www.pppinindia.com/pdf/PPPnotification.pdfhttp://www.pppinindia.com/pdf/PPPnotification.pdfhttp://www.pppinindia.com/pdf/PPPnotification.pdfhttp://www.pppinindia.com/pdf/PPPnotification.pdfhttp://www.pppinindia.com/pdf/PPPnotification.pdfhttp://www.pppinindia.com/pdf/PPPnotification.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://articles.economictimes.indiatimes.com/2010-03-25/news/28485357_1_viability-gap-funding-vgf-infrastructure-projectshttp://www.pib.nic.in/newsite/erelease.aspx?relid=50167http://infrastructure.gov.in/pppprojects/index.php
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The EC is authorised to sanction VGF of up to Rs 200 crore (US$ 37million), with the permission of the Finance Ministry. The committeecan also sanction budgets exceeding Rs 200 crore (US$ 37 million),after seeking the Finance Minister’s approval. Additionally, the ECefficiently and fairly distributes funds across all infrastructure subsectors.
o Empowered Institution (EI): The EI is authorised to sanction VGFprojects of up to Rs 100 crore (US$ 18 million), with the permission ofthe Finance Ministry. The EI also reviews proposals before presentingthem to the EC.
India Infrastructure Finance Company Ltd. IIFCL)29
: The central governmentset up IIFCL to provide loans of up to 20 per cent of the total project cost tofund long term infrastructure projects.
Model Concession Agreements, and other documents:30 The Model
Concession Agreements and other documents comprise a standardised list offrameworks, such as Model Request for Qualifications (RFQs), Model Requestfor Proposals (RFPs), and guidelines and manuals, which makes the biddingand awarding of PPP projects more transparent and competitive.
This also helps the state and central governments to perform due diligencebefore awarding projects.
Initiatives such as doubling the permitted investments to be raised from tax freebonds along with the incorporation of irrigation, terminal markets and oil and gasstorage facilities in the sectors eligible for VGF, and the numerous policiesdevised to streamline the awarding of PPP projects set the stage for sustainableinfrastructure growth in the 12th Five Year Plan.
29 Planning Commission – Mid term appraisal of the 11th Plan30 Planning Commission – Mid term appraisal of the 11th Plan
http://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdfhttp://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap14_invest.pdf
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3. CONCLUSION
Development of the infrastructure sector is crucial to the growth of the Indianeconomy. Sustainable development can only be attained through a carefulanalysis of the factors that have mitigated growth in the past, and thereafter,taking the appropriate corrective measures.
Over the last decade, the Indian government has made significant efforts toeliminate bottlenecks in these areas. It has initiated policies and schemes such asECs/EIs and Model Concession Agreements to increase the inflow of private
sector investments and make the bidding process for projects more transparent.
Some factors that could be a key enabler for future growth are:31
Awarding a higher number of projects: This can be achieved throughefficiently awarding projects as required in each of infrastructure’s subsectors, especially through the PPP mode, and by easing the selection criteriafor private investors.
Efficient implementation of tendered projects: Successful infrastructureprojects demand efficient implementation for curbing cost and time overruns
of 20–25 per cent.
7
Assessing the viability of PPP projects: The viability of PPP projects should becarefully assessed in terms of availability of sufficient VGF and cost estimates,while minimising the liability to be borne by the private sector enterprises,thereby making the investment a profitable option.
In the 12th Five Year Plan, a sizeable share of investments will be drawn throughPPPs. As per the analysis in this report, the sub sectors with more privateinvestments are growing faster than the others. In fact, the Indian government isalso focusing on increasing private sector investment to 50 per cent in the 12th
Five Year Plan.
The roadways and other transportation domains reported the maximum numberof PPP projects. The government plans to introduce PPPs in the utilities sector,with focus on power transmission, water supply, health and education.32
The country’s investment in infrastructure should increase to at least 10 per centof its GDP by 2017 to achieve and sustain 8 to 9 per cent GDP growth over the nextfive years.
Rs to US$ conversion rate of 0.01848 (as of 20 September 2012) is used across the report
31 McKinsey report 32 Planning Commission – Approach to the 12th Plan
http://www.mckinsey.com/locations/india/mckinseyonindia/pdf/Building_India_Executive_Summary_Media_120809.pdfhttp://www.mckinsey.com/locations/india/mckinseyonindia/pdf/Building_India_Executive_Summary_Media_120809.pdfhttp://www.mckinsey.com/locations/india/mckinseyonindia/pdf/Building_India_Executive_Summary_Media_120809.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdfhttp://www.mckinsey.com/locations/india/mckinseyonindia/pdf/Building_India_Executive_Summary_Media_120809.pdf
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