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June, 2011

Indian Infrastructure – Brief Overview

The strong level of economic growth achieved in India in recent years has led to an expansion of industry, commerce and per-capita income, which, in turn, have fuelled the demand for infrastructure services. India is one of the largest and most dynamic infrastructure and project finance markets in the world with the total number of project based Special Purpose Vehicles (SPVs) at around 800, according to Ratings Agency Fitch.

India's infrastructure financing requirements and the new manufacturing policy being finalised will open up US$ 1 trillion opportunities for global investors over the next five years, according to Economic Affairs Secretary R Gopalan. The infrastructure sector accounts for 26.7 percent of India's industrial output.

Indian Infrastructure – Size and Growth

The investment in infrastructure is expected to increase to 8.37 per cent in the final year of the 11th Plan and likely to touch 10 per cent of GDP in the 12th Five Year Plan (2012-2017). With the increasing investment, the share of private sector in the total investment on infrastructure has increased rapidly. The contribution of private sector in total infrastructure investment in each of the first two years of 11th Plan (2007-2012) was around 34 per cent. This is higher than the 11th Plan target of 30 per cent and 25 per cent achieved in 10th Plan period. It is expected to rise to 36 per cent by the end of 11th Plan and 50 per cent during the 12th Plan (2012-2017).

The government has played a pivotal role in making Indian infrastructure sector an attractive investment destination for both domestic and foreign players. Steps taken by the government such as - opening up the sector to private players, liberalising foreign investment norms and huge spending on projects like National Highway Development Project (NHDP), National Maritime Development Programme (NMDP) et all- have given a stupendous impetus to the sector in the past few years.

India's infrastructure sector output grew 5.3 percent in May from a year earlier, slightly higher than an annual growth of 5.2 percent in April, according to government data. During April-May, output rose 4.9 percent from 7.9 percent a year ago.

Six core industries – comprising crude oil, petroleum refinery, coal, electricity, cement and finished steel - grew by 5.2 per cent in April 2011, according to the recent data released. Petroleum refinery and finished steel output grew by 6.6 per cent and 4.3 per cent respectively. Electricity generation expanded by 6.8 per cent in the reported month. Crude oil production performed quite well, registering 11 per cent growth as against 5.1 per cent expansion in the previous year. Coal output registered a growth of 2.9 per cent in April 2011, a complete turnaround in comparison to the same month last year, when output had contracted by 2.9 per cent.

Indian Roads

India built about 1,800 kilometres (km) of roads in the fiscal year 2010-11. The government has announced constructing 35,000 km of highways by 2014 for which it has estimated an investment of over US$ 67 billion. A major chunk of this is expected from the private sector.

During 2010-11, 50 road projects of 5,060 km were awarded, while around 15,450 kms of national highways have been completed under the NHDP until March 31, 2011.

Also, the Road Transport and Highways Ministry has requested the World Bank for financing the projects that include conversion of 20,000 km of state highways into national highways, besides upgrading 17,000 km of the latter.

Seven projects involving widening of roads in five states were approved by a panel in the Finance Ministry at an estimated cost of US$ 1.69 billion and will be built under public-private-partnership (PPP) mode. The Public Private Partnership Appraisal Committee (PPPAC) chaired by R Gopalan, Secretary of Department of Economic Affairs, granted the approvals, according to the official statement.

Meanwhile, the Indian government will award a record 7,300 km of road building contracts in 2011 worth about US$ 12 billion, said J.N. Singh, member finance at National Highways Authority of India (NHAI).

Indian Ports

India is going global with its maritime ambitions. The government is setting up Indian Ports Global – a dedicated company like Dubai Port International and Singapore's PSA International – that will invest and acquire stakes in overseas ports and container terminals.

To begin with, the cash-rich port trusts that are owned by the government will pump in US$ 556 million into India Ports Global, which will initially act as the shipping ministry's investment arm. The company will then leverage this amount to raise another US$ 1 billion from the market by issuing tax-free bonds, officials involved with the initiative said.

The capacity of Indian ports during 2010-11 crossed 1 billion tonnes per annum.

Foreign direct investment (FDI) inflow into ports has been registered at US$ 1.64 billion from April 2000 to April 2011, as per data released by Department of Industrial Policy and Promotion (DIPP).