Infrastructural development mirrors the overall health of a nation’s economy. Infrastructure can be defined as major components, such as basic buildings, institutions and facilities or other essential elements, that are necessary to sustain and enable economic growth. Physical infrastructure is directly proportionate to the growth and development of a country.
The Government of India has always been quite forthcoming when it comes to the upgradation of infrastructure. There has been a strong focus on assuring effective implementation of associated projects though budgetary allocations, tariff policies, fiscal incentives, private sector participation and public-private partnerships (PPPs).
The Index of Eight core industries—crude oil, petroleum refinery products, coal, electricity, cement, steel, fertilizers and natural gas—having a combined weight of 37.90 per cent in the Index of Industrial Production (IIP) stood at 154.6 in December 2012, according to data released by the Union Ministry of Commerce and Industry. During April-December 2012-13, the cumulative growth rate of the Core industries was 3.3 per cent. The infrastructure sector accounts for 26.7 per cent of India's industrial output.
The Planning Commission has projected that investment in infrastructure would almost double at US$ 1,025 billion in the Twelfth Five Year Plan (2012-17), compared to US$ 514 billion in the Eleventh Plan. Of the US$ 1,025 billion, 50 per cent is expected to come from private sector, whose investment has been 36 per cent in the Eleventh Plan.
According to investment banking company Goldman Sachs, India's infrastructure sector will require US$ 1.7 trillion investment in the next 10-years. With a view to streamlining and simplifying the appraisal and approval process for public private partnership (PPP) projects, a Public Private Partnership Appraisal Committee (PPPAC) has been constituted under the chairmanship of Secretary, Department of Economic Affairs and Secretaries of Planning Commission, Department of Expenditure, Department of Legal Affairs and the concerned Administrative Department as its members. The project proposals are appraised by the Planning Commission and approved by the PPPAC.
Further, India needs to spend US$ 1.2 trillion by 2030 to meet the projected demand of its cities, according to a McKinsey Global Institute Report.
The report, prepared for Royal Institution of Chartered Surveyors (RICS), estimates that about 97 million jobs would be created over 2012-22 across different sectors in the country due to which, India would potentially need to build an average of 8.7 billion square feet (sq ft) of real estate space every year. This would be a great attraction for investors looking for opportunities in the infrastructure segment.
- Fifth largest electricity generation capacity in the world
- 454 airports and airstrips in India
- Fourth largest rail network in the world
The Cabinet has given its nod to private investment in state-run Indian Railways for building new rail lines and plants and enhance capacity. The move would allow private sector to connect railways with the ports, mines and industrial plants by providing last-mile connectivity and thereby reduce transportation costs.
The Indian Government has also envisaged The Indian Railways Vision 2020 which aims to tackle infrastructure obstacles and deliver best services while building capacity.
Further, the Government has recently approved nine road projects worth around Rs 11, 600 crore (US$ 2.11 billion), to be executed by State Governments under PPP model. These projects, totalling up to 1, 226 km, are being bid in Andhra Pradesh, Uttar Pradesh and Bihar.
The finance ministry would provide 20 per cent of the financial requirement while another 20 per cent would come from the highways ministry in order to make these projects financially viable in the form of viability gap funding (VGF). The Government of India has earmarked Rs 2, 295 crore (US$ 417.88 million) under VGF, wherein Rs 500 crore (US$ 91.06 million) would be released in 2012-13.
Global private equity (PE) funds looking for high return on investments are going to target Indian infrastructure companies in the coming years, says a report by research agency Preqin. As per the study, India is attracting the highest number of unlisted, closed-end funds that focus on a single country, making it the most preferred choice among emerging markets. India is expected to require around US$ 1 trillion worth of infrastructure investment over the next five years.
Infrastructure PE funds investing in India can choose from sub-sectors such as power, telecom, roads and ports. The Preqin report says 74 per cent of India-focused funds will invest in greenfield projects, 84 per cent in brownfield assets, and 42 per cent will buy out the stakes of other PE funds.
Investment Policy Updates
- FDI up to 100 per cent under the automatic route is allowed in the power sector. Accordingly, any foreign power company can enter power sector through FDI route
- FDI up to 100 per cent under the automatic route is permitted in exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products, actual trading and marketing of petroleum products, petroleum product pipelines, natural gas/LNG pipelines, market study and formulation and Petroleum refining in the private sector. This will be subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies
- FDI up to 49 per cent is permitted under the Government route in petroleum refining by the Public Sector Undertakings (PSU). This should not involve any divestment or dilution of domestic equity in the existing PSUs
- FDI up to 100 per cent under the automatic route is allowed both in setting up new and in established industrial parks
Source: Consolidated FDI Policy, Department of Industrial Policy & Promotion (DIPP)
According to the Finance Minister, the investment in the sector during the Twelfth Five-Year Plan will go up to Rs 50 lakh crore (US$ 997.3 billion), about half of which is expected from the private sector. Further, to attract private investment, more sectors like irrigation, oil and gas storage facilities and telecommunication have been made eligible for viability gap funding under the scheme 'Support to PPP in Infrastructure'.
The allocation to the highways sector has also been enhanced by 14 per cent to Rs 25,360 crore (US$ 5.06 billion) in 2012-13 and the Government has set a target of covering a length of 8,800 km roads under National Highways Development Project (NHDP) next fiscal.
To ensure faster implementation of major planned projects, the Government has announced a single-window clearance mechanism under the Cabinet secretary for review and issue of clearances associated with major projects. The clearance board, to be set up on similar lines of the Foreign Investment Promotion Board (FIPB), would act as a problem-resolver and investment tracker for projects over Rs 1,000 crore (US$ 184.16 million) and will include representatives from the ministries of home, defence, environment and forests, commerce, coal, department of space and other infrastructure and energy-related ministries and departments.
We see huge growth potential in the transmission space as the country targets adding 200,000 MW generation capacity in the next five years
CEO & Whole Time Director
Reliance Infrastructure Ltd
Hydro Projects worth 2,500 megawatt (MW) across various states have been given clearance by the Forest Advisory Committee (FAC) of Ministry of Environment and Forest (MoEF).
The Union Cabinet gave its approval for formation of the Special Purpose Vehicle (SPV) for the Turkmenistan-Afghanistan-Pakistan-India (TAPI) Pipeline Project and permitted GAIL India Ltd to join the SPV.
The Union Cabinet of India has approved the proposal for two highway projects worth over Rs 5,000 crore (US$ 917.25 million).
National Aluminium Co Ltd (Nalco) has commissioned its first wind power project at Gandikota in Kadapa district of Andhra Pradesh (AP). The company has invested Rs 275 crore (US$ 50.02 million) for the 50 megawatt (MW) project.