Infrastructure projects

The importance of infrastructure for sustained economic development is well recognized in a country. India will be a high growth economy over the next decade. India’s infrastructure spending at present accounts for just 4 per cent of GDP as compared to china’s 9 percent. This emphasizes the need to step up expenditure in this sector. The need of the hour is significant private-sector participation. Physical infrastructure covering transportation, power and communication through its backward and forward linkages facilitates growth; social infrastructure including water supply, sanitation, sewage disposal, education and health, which are in the nature of primary services, has a direct impact on the quality of life. The feasibility of infrastructure projects in ports, roads, airports and railways with private-sector majority ownership is already evident. The government also expects a substantial increase in the share of private sector investments in infrastructure from 19 per cent in the Tenth Plan to around 30 per cent in the Eleventh Plan. The biggest increase in private participation is expected in roads (from 5 per cent to 36), ports (47 per cent to 74 per cent) and railways (less than 1 per cent to 20 per cent). The Planning Commission estimates that the remaining infrastructure investments will be funded by the central and state government.

Urban infrastructure is reeling under pressure with the transport infrastructure crumbling and a shortfall of over 20 million housing units. Besides, water supply and sanitation systems in most cities are in urgent need of upgradation. The primary healthcare facilities in India require significant additional investment.

The efficacy of private sector participation in infrastructure development would be contingent upon the capability to commercialize these projects whereby recovery of investments would be through a system of user charges. There is a potential for public private partnerships (PPPs) to contribute more and help bridge the infrastructure gap in India. There has been considerable progress in the last ten years in attracting private investment into the infrastructure sectors; first in telecommunications, then in ports and roads, and in individual projects in other sectors. Forty-six percent of plan outlay has been earmarked for developing infrastructure as the sector has received much priority in the annual budget of India for 2010-2011.

For a long term investor, the investment opportunities are significant across a wide spectrum of infrastructure assets. Recent initiatives such as permitting take-out financing by India Infrastructure Finance Company (IIFCL) are encouraging as this enables commercial banks to rotate capital and infuse additional liquidity into the system. There is no doubt that Indian infrastructure is poised for a great leap forward.