2. GAPS BETWEEN
India’s Economic & Infrastructure Development
• Despite becoming the second fastest growing and the fourth largest economy of the world
(in terms of Purchasing Power Parity or PPP), India continues to face large gaps in the
demand and supply of essential social and economic infrastructure and services.
• The infrastructure shortages are proving to be the leading binding constraint in sustaining,
deepening, and expanding India’s economic growth and competitiveness.
• Lack of good quality infrastructure is costing India 1–2% growth in GDP every year and is
preventing the sectoral, regional, and socioeconomic broadening of the economy and its
benefits, as well as affecting inclusive growth in India.
• India’s global competitiveness remains constrained and is adversely affected by lack of
infrastructure, which is critical for improved productivity across all sectors of the economy.
• Poor infrastructure has been a major barrier to foreign direct investment (FDI).
• The benefits of accelerated growth of the last decade have not been shared by large sections
of the population.
• Infrastructure is now seen as vital necessity for economic growth and poverty alleviation.
• Studies by the ADB (Asian Development Bank) and others have confirmed a strong linkage
between infrastructure investments, economic growth, and reduction of poverty.
• GOI has thus recognized that with better infrastructure India’s growth can be higher, with the
benefits reaching a much larger section of the population.
3. HISTORICALLY
Investments in infrastructure have been low in India
• Development of infrastructure was completely in the hands of the public sector and was
plagued by corruption, bureaucratic inefficiencies, urban-bias and an inability to scale
investment.
• The country initiated the process of partnering with the private sector in 1991, beginning with
the power sector, and since then achieved some successes through PPPs in the telecom,
roads, ports and airports sectors.
• By the end of the 1990s, actual investment (public and private) in infrastructure remained at
under 4% of GDP per annum as per the World Bank 2005 report. Due emphasis was given
to scale up the investment to about 8% of GDP by 2005-06.
4. • To realize sustained growth of 7-8% for the year 2007-2012, the government acknowledged
that investment in infrastructure would have to be at the same rate as the economic growth
that is being targeted.
• It was thus imperative that India would have to increase infrastructure spending from 4.6% in
the Tenth year Plan (2002-2006) to about 7%-8% in the Eleventh year Plan (2007-2012).
• However, at the end of the year 2010, the Gross capital formation (GCF) in Infrastructure is
currently 5% of GDP i.e. approx €985 Billion (USD 1.3 trillion)
• The Infrastructure sector currently accounts for 26.7% of India’s industrial output and if the
has to match the more advanced Asian economies, then GCF has to be increased to a more
sustainable level of 9 to 10%.
• Finally, in some areas, roads, rail lines, ports and airports are already operating at capacity, so
expansion is a necessary prerequisite to further economic growth.
INDIA’S INFRASTRUCTURE
Indian government estimated investment requirements
6. Power and Transportation (i.e. roads, ports, and airports) is expected to lead growth
with more than 50% of the planned investment allocated for these two sectors.
XI YEAR PLAN
389 billion Euro over a period of 5 year (2007-12)
7. India’s infrastructure a reality check
The government’s target and progress till date
• XI five year plan (2007-2010) targeted investment of €389 billion in infrastructure.
• XII five year plant (2012-2017) targeted investment of €758 billion in infrastructure.
• Increasing dependency upon private sector participation via Public- Private Partnerships
PPPs).
• Private sector will account for nearly 30% of infrastructure investment in XII five year
plan as against 18% in the current five year plan.
• Thus, private sector will invest €116.70 billion (US$150bn) over the five year period or
about €22.7bn (US$30bn) annually.
• Assuming that equity will fund 25-30%, this means a €5.68- €7.5billion (US$7.5-10bn)
equity infusion each year by the private sector.
• Global funding in various forms such as Private Equity, dedicated Infrastructure
Funds, Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII)
8. XII FIVE YEAR PLAN (2012-17)
€ 758 billion investment | 30% expected from the private sector
€ 758 bn
€ 389 bn
10. Introduction:
• Good physical connectivity in the urban and rural areas is essential for economic growth
• India’s growing economy has witnessed a rise in demand for transport infrastructure and
services by around 10 percent a year.
India’s Transport Sector:
• Railways (the largest one in Asia) and roads are the dominant means of transport carrying
more than 95% of total traffic generated in the country.
• Roads carry almost 90 percent of the country’s passenger traffic and 65 percent of its freight.
• However, most highways in India are narrow and congested with poor surface quality, and 40
percent of India’s villages do not have access to all-weather roads.
• India has 12 major and 185 minor and intermediate ports along its vast coastline and 60
airports, including 11 international airports.
TRANSPORT SECTOR
A brief overview
11. ROADS & HIGHWAYS
Projected spending
from (FY07-12) approx. Euro 69 billion
• 3.34 million kilometres of road network is the second largest in the world
• Road network carries nearly 65% of freight and 85% of passenger traffic.
• The National Highway Development Program (NHDP), is planning more than 200 projects
in NHDP Phase III and V to be bid out, representing around 13,000km of roads.
• The average project size is expected to €113~151million (US$150-US$200million).
• Larger projects are likely to reach the €530~€606 million ($700 million-US$800 million)
range.
• 53 projects (aggregate length of 3000km) and estimated cost of around €6bn (US$8
billion) are already at the pre-qualification stage.
• More than 10 states are also actively planning the development of their highways
(average project size €75~ €94 million range).
12. • 100% FDI under the automatic route is permitted for all road
development projects.
• 100% income tax exemption is available for a period of 10 consecutive assessment years out
of the 20 years beginning from the year in which the undertaking begins to operate the
business.
• Subscription to equity shares or debentures issued by public company (infra projects) eligible
for deduction equal to 20 per cent of the amount subscribed
• Import duty completely exempted on certain identified high quality construction plants and
Equipments, while import of bitumen is now permitted under Open General License.
• NHAI agreeable to provide grants/viability gap funding for marginal projects
• Model Concession Agreement formulated and Long Concession period of upto 30 years.
• IIFCL to provide funding upto 20% of project cost
• Dispute resolution will be in line with Arbitration and Conciliation Act 1996, based on
United Nations Commission on International Trade Law (UNCITRAL) provisions
ROADS | Policy Initiatives
13. • The Indian Government has projected investments in the XI Plan (2007-2012) totalling €49bn
of which 40% is expected to be contributed by the private sector.
• Indian Railways (IR) has one of the largest and busiest rail networks in the world, transporting
over 18 million passengers and more than 2 million tonnes of freight everyday.
• With 1.4 million people, it is the world's largest commercial or utility employer.
• The railways traverse the length and breadth of the country, covering 6,909 stations over a
total route length of over 63,327 kilometers (39,350 miles).
• Indian Railways own over 200,000 wagons, 50,000 coaches and 8,000 locomotives of rolling
Stock
• One major PPP programme is already in its initial phases (Dedicated Freight Corridor project)
at an estimated cost of US$6-7 billion.
RAILWAYS
projected spending
from (FY07-12) approx. Euro 49 billion
14. • Investment in infrastructure as well as modernization of wagons
technology.
• Advanced signalling & telecommunication.
• Induction of high horsepower locomotives.
• Grade separation.
• Use of information technology specifically tailored to improve transit times and lower unit
cost operation
• Building world - class passenger and freight terminals bench - marked to the best global
standards.
• Other proposed initiatives include the development of manufacturing plants for rolling stock,
setting up of logistics parks and for projects focused on increasing connectivity with ports.
• City metro systems are also in the pipeline with the first corridor of the Mumbai Metro
Project been awarded to Reliance Infrastructure.
RAILWAYS | Sector Initiatives
15. • An estimated investment of around €16bn is targeted for port projects.
• The National Maritime Development Program includes 276 projects, with a required
investment of about €11.37bn over the next ten years, with private investment targeted at
around €6 billion.
• Port traffic is estimated to reach 877 million tonnes by 2011-12, and containerised cargo is
expected to grow at 15.5% (CAGR) over the next 7 years.
• Major opportunities for projects related to port development (construction of jetties, berths,
container terminals, deepening of channels to improve draft..etc)
• 100% FDI, and an independent tariff regulatory authority has been set up to facilitate projects
at major ports.
PORTS
Projected spending
from (FY07-12) approx. Euro 16 billion
16. • 100% FDI under the automatic route is permitted for port
development projects.
• 100% income tax exemption is available for a period of 10 years in a block of 15 years.
• Tariff Authority for Major Ports (TAMP) regulates the ceiling for tariffs charged by Major
ports/port operators (not applicable to minor ports).
• Major port trusts permitted to form Joint Ventures with foreign port operators, minor ports
and other companies to attract new technology and creation of optimal infrastructure.
• A comprehensive National Maritime Policy is being formulated to lay down the vision and
strategy for development of the sector till 2025.
PORTS | Policy Initiatives
17. Power Generation
• India has the fifth largest generation capacity in the world with
an installed capacity of 152 GW as on 30 September 2009 (Source: in a recent report by Netscribes,
“Power Sector – India”, March 2009), which is about 4 percent of global power generation.
• The average per capita consumption of electricity in India is estimated to be 704 kWh during
2008-09, which is relatively low in comparison to world average stands at 2,300 kWh2.
Power Transmission
• The current installed transmission capacity is only 13 percent of the total installed generation
capacity (Source: Ministry of Power Website 2009)
• The Ministry of Power plans to establish an integrated National Power Grid in the country by
2012 with close to 200,000 MW generation capacities and 37,700 MW of inter-regional power
transfer capacity.
Power Distribution
• While some progress has been made at reducing the Transmission and Distribution (T&D)
losses, these still remain substantially higher than the global benchmarks, at approximately 33
percent.
POWER
Projected spending
from (FY07-12) approx. Euro126 billion
18. • The 11th Five Year Plan (2007-2012) envisaged an addition of 78.7 GW (gigawatt).
• The 12th five year plan projects an addition of 100 gigawatt of which tendering for about
43GW has already been done, with the rest likely to be tendered over the next three to
five years.
• 100% FDI permitted in Generation, Transmission & Distribution.
• Income tax holiday for a block of 10 years in the first 15 years of operation.
• Waiver of capital goods import duties on mega power projects (above 1,000 MW generation
capacity)
• Policy framework in place and also emphasizes the need of meeting future power
requirements through non conventional sources.
• Main objectives: access to electricity for all households, meet full power demand and
increase per capita availability of power to 1,000 units by 2012.
• Independent Regulators: Central Electricity Regulatory Commission for Central PSUs
and inter- state issues. Each State has its own Electricity Regulatory Commission
POWER | Sector Initiatives
19. • The Indian aviation industry is one of the fastest growing aviation
industries in the world with private airlines accounting for more than
75 per cent of the sector of the domestic aviation market.
• The country has 454 airports and airstrips, of which 16 are designated as international
airports.
• As per certain projections by 2020, Indian airports are estimated to handle:
280 million passengers.
Investment opportunities envisaged: € 61 billion (US$80 billion) in new aircraft and €22.87
billion (US$30bn) in development of airport infrastructure.
Cargo in the range of 3.4 million tones per annum.
Air cargo traffic to grow at over 11.4% p.a. over the next 5 years.
• Major opportunities lie in Greenfield airport projects in resort destinations and emerging
metros such as Kannur, Goa, Pune, Navi Mumbai, Ludhiana, etc.
• City-side development opportunities for upgradation of 35 non-metro airports.
• About 25 regional greenfield/unutilised airports likely to be bid out for private development.
AIRPORTS
Projected spending
from (FY07-12) approx. Euro 6 billion
20. • 100% FDI is permissible for airports.
• FIPB approval required for FDI beyond 74%.
• 100% FDI under automatic route is permissible for greenfield airports.
• Private developers allowed to setup captive airstrips and general airports 150 km away
from an existing airport.
• 100% tax exemption for airport projects for a period of 10 years.
• 49% FDI is permissible in domestic airlines under the automatic route, but not by foreign
airline companies
• 100% equity ownership by Non-Resident Indians (NRIs) is permitted.
• 74% FDI permissible in cargo and non-scheduled airlines.
AIRPORTS | Sector Initiatives
21. • Significant increase in foreign money entering India in the year 2008 in the wake of elevated
interest in PPP investments in the year 2006 and 2007 respectively.
• In the year 2008, the sector witnessed an India focused Infrastructure fund raisings of €1.5bn
(US$2.2bn) of which was over and above the Private Equity money raised for infrastructure.
• Influx of foreign equity dried up in the year 2009 only (€758 million) of infrastructure Private
Equity was raised.
• FDI into Indian infrastructure also rose sharply in 2007 and 2008 but then declined in the
financial year 2009 due to the global financial crisis and lack of meaningful projects.
• In March 2010, FDI in infrastructure stood at €1.13bn~€1.51bn (US$1.5-2bn)
Public Private Partnership
Overview of foreign investments
23. The tax environment for E&C companies
Investing in India
Nature of tax Governing Authority Rate of Tax (in %)
Income Tax Central Government 33.99
Custom Duty Central Government Up to 31.70
Excise Duty Central Government Up to 14.42
Service Tax 1 Central Government 12.36
Sales Tax/Value Added
Tax (‘VAT’) 1
Central Government 4.00 to 12.50
1India is planning to implement a unified goods and service tax (GST) in 2010 at a rate still to be determined
24. Overview of tax holidays
For various infrastructure segments
25. PPP MODELS
Stabilized in roads & evolving in other sectors
• Most PPP projects are in Transportation, especially roads sector, which accounts for more
than 60% of the total number of projects and 45% by total value.
• Concession agreements, especially in roads and ports have evolved over the last 4-5 yrs.
• Private participation has not been forthcoming in railways due to systemic hurdles and
implementation issues
• Water sector in India is least amenable for PPP due to political sensitivity of the sector.
26. PPP MODEL
International players in Indian market
• Foreign multinationals have equity participation only in 22 PPP projects valued at €287million.
• Malaysian companies are leading investors in public private partnership (PPP) projects in
India, involving nearly six major infrastructure ventures.
• UK (4 projects), Mauritius (3), France (2), Germany (2), UAE (2), Philippines (2) and United
States (1), Italy(1) and Switzerland (1).
• Prominent PPP projects: modernisation of Mumbai and Delhi international airports, Delhi-
Noida toll bridge, Pipavav port, Bangalore international airports and JNPT container terminal.
• Mauritius-based ACSA Global (Airports Company South Africa), has Euro 26 million equity
stake in modernization of Mumbai international airport project.
• Apollo Enterprises from UK has equity stakes of Euro 8 million and Euro 1.8 million in
Lucknow-Sitapur road project and Raipur Durg expressway respectively.
27. Sector-wise break-up of foreign investor participation in PPP
projects
Foreign Investor
Versus Sector
No. of
Projects
Investment in
million Euro
% of total
project cost
Ports 9 315.34 24%
Roads 9 194 15%
Airports 4 798.21 61%
Total 22 1307.55 100%
28. PPP MODEL
Examples of International players in Indian market
Atlantia S.p.A (Italy) has formed a JV with Tata Realty and Infrastructure Limited The
consortium has been awarded a project on BOT basis in the State of Maharashtra.
Balfour Beatty, is a London based leading worldwide engineering, construction, and
services company which is planning to enter India and is one of the bidders for a $1
Billion project to be awarded by NHAI.
Leighton India is a 100% subsidiary of Leighton Holdings, Australia. Recently it has
bagged $ 460 million EPC contract for a NHAI road project from ILFS Transportation
Networks Ltd. It has also been participating in PPP projects as co-developer and
has two NHAI road projects in JV with Indian Developers and has completed EPC
worth ~$200 million for these projects. It also has been awarded two port terminal
projects in JV with Sterlite Industries Ltd.
30. KEY GOVERNMENT INITIATIVES
1) Committee on Infrastructure (COI)
2) Cabinet Committee on Infrastructure (CCI
3) Public Private Partnership Appraisal Committee (PPPAC)
4) Viability Gap Funding (VGF) Scheme
5) India Infrastructure Finance Company Limited (IIFCL)
6) Tax Exemption
7) Advisory Services
8) Model Documents
Whilst key government personnel are aware of the concerns raised by the industry
participants in they are also keen to stress that a number of changes and reforms have been
undertaken over the past three to five years. Moreover, listed below are some of the key initiatives
undertaken:
31. PROJECT DESCRIPTION COST
Euro Mn
1. Rail network
1.1 MRTS
1.2 MUTP
A 146 km metro rail network
Enhancing the existing suburban rail
network
1,461
1,291
2. Road network
2.1 MUIP Enhancing Mumbai’s road network 473
3. Sea Link
3.1 Western freeway link 21 km sea link to decongest western
corridor
696
4. MTHL A road and rail bridge between
Mumbai and the mainland
719
5. Navi Mumbai International
Airport
Mumbai’s second international airport
over 2400 acres
678
6. Water Supply Project Augmenting water supply in the
hinterland
321
7. Slum rehabilitation Rehabilitate 6 million people in 10
years
978
8. Reconstruction of dilapidated
buildings
Reconstruction of 10,000 old
buildings
267
9. Mumbai Sewerage disposal
project
Rehabilitate and augment sewerage
network
322
10. Storm Water Drain project Rehabilitate and augment drain
network
305
Some Major
Infrastructure
Projects in
Mumbai
(Public Funding
Needed)
Transport
Opening up
hinterland
Housing & other
infrastructure
32. Sr.
No.
PROJECT
Estimated
Cost (Rs in
Crores)
Approx.
Estimate in
USD/Euro
SCOPE
A Transport Infrastructure Projects -
1 Mumbai Trans Harbour Sea Link
Project
8311 USD1843 mn or
Euro 1.4billion
(8 lane road) or (6 lane road)
with provision for 2 lanes of
metro. Length - 22 kms. - 4
lanes of elevated road
2
Mumbai Metro Rail Project -
MMRP
20921
USD4639 mn or
Euro3.5bn
9 corridors, 135 kms
Western Freeway
3 Worli Haji Ali Section 1950
USD432 mn or
Euro 329million
8 lanes, length - 3 kms.
4 Haji Ali - Nariman Point section 6000
USD1331 mn or
Euro 1.04billion
4 lanes, length - 9 kms - Sea
bridge + Tunnel
5 Bandra - Versova section 2650
USD588 mn or
Euro488 million
8 lanes, length - 11 kms
6 Airport at Navi Mumbai - Phase 1
(Area 1140 Ha. Airport will have 2
parallel runways of 3.7 kms each.
Designed to handle 60 m
passengers per annum by 2030
4767
USD1057 mn or
Euro 805 million
Phase 1 will have 1 run way
and 1 terminal
Projects in the
Mumbai Metropolitan Region
33. 7 Eastern Expressway 920
USD 204 million or
Euro 155 million
15 lanes , 19 kms
8
Vasai / Virar - Alibaugh multimodal
corridor -
10000
USD 2218 mn or
Euro 1.6billion
8 lane corridor of 140 kms
length from Virar to Alibaugh
with a provision of metro rail
and separate lanes for buses
9 SION - PANEVL EXPRESSWAY 1838
USD408 mn or
Euro311million
20 lanes + 4 lanes of service
roads , length 31 kms
10
Development of World class station at
Chhatrapati Shivaji Terminus - Central
Railways
NA
CST station to be converted
into a World Class station
with modern facilities and
commercial utilization of
space
B URBAN RENEWAL
11
Dharavi Redevelopment Project - OSD,
DRP
5600
USD 1242 mn or
Euro946 million
12
Redevelopment of Nariman Point
Business District and Eastern Water
Front
NA
13 INNOVATION PARK in MMR OVER 5000 acres
C WATER TRANSPORT
14 Western Waterways - MSRDC 1200 USD318 mn or
Euro 242 million
length 45 kms
15 Eastern Waterways - MMRDA 234 length 19 kms
34. OPPORTUNITIES FOR ITALIAN COMPANIES
Real Estate
Residential (townships, skyscrapers, holiday homes, etc…) | shopping malls |
educational institutes | industrial units | offices
Building equipments
Earthmoving | Concrete equipments | Material Handling |
Road construction equipments and special purpose vehicles
Construction Services
Project management | engineering and consultancy services | quality accreditation services
Building materials
Pre-cast concrete
Urban Infrastructure
Solid Waste Management | Water Treatment Plants | Seawater desalination plants
Infrastructure
Road and national highways building | Road operations and maintenance (O&M), | Tunneling
construction for roads and railways | ircraft maintenance, repair & overhauling (MRO) hubs, | Metro rail /
Light Rail Transit (LRT) | High speed train building | Solar , minimum 1 MW farm | Wind farms | Gas
based power generation modules
Indian companies are on the look out for International players with good technology and would like to
explore various possibilities like joint ventures. acquisition (part or full) or commercial agreements for
distributorship or license agreements. Such opportunity can be broadly classified as follow: