Scope for infra development

In the last six years,India has maintained a steady GDP growth of over 8% barring a slight blip in 2009-10 when growth dropped to 7.2%.

In the last six years,India has maintained a steady GDP growth of over 8% barring a slight blip in 2009-10 when growth dropped to 7.2%. Economic activity has again picked up in 2010-11 and most estimates suggest that the country will regain the over 8% growth momentum. During this phase,with over 60% share in GDP,much of Indias growth was driven by consumption. While the size and growth potential of the domestic market will continue to drive growth,sustainability requires the creation of supporting infrastructure. Already,2009-10 and 2010-11 have witnessed spiraling levels of inflation caused mainly by supply-side constraints emanating from inadequate infrastructure.

The Planning Commissions XI Five-Year Plan (2007-2012) estimates a steady rise in infrastructure investments to GDP ratio from 5.71% in 2006-07 to 8.37% in 2011-12. By the end of 2009-10,of the Rs 20.5-trillion investments in the XI Plan period,51.9% has already taken place and around another Rs 10 trillion is expected in 2010-11 and 2011-12.

The private sector share in infrastructure investments is increasing. While it accounted for 24.9% of investments in the X Plan,it is likely to contribute 36.2% of investments in the XI Plan.

Already,between 2007-08 and 2009-10,the private sector has contributed to 34.3% of the investments. Time over-runs and implementation impediments continue to plague most of Indias infrastructure development. The private sector has an important role in mobilising capital,technology and project execution expertise to enable on-time execution of projects. Given the regulatory issues and long gestation of investments,in most cases,it is difficult for the private sector to protect its shareholder interests and independently invest in the infrastructure sector. The risks have to be optimally allocated between the public and private sectors and models based on private public partnerships (PPP) will be the defining factor to the success of sustainable infrastructure development in India.

A glance at the status and developments in the individual sectors provides a clearer picture of the opportunities for the private sector. The power sector continues to be characterised by shortages,with the peak and energy deficit of power recorded at over 13% and 10%,respectively. Capacity addition in 2009-10 was 9,585 mw the highest ever. Also,the private sector played a major role by contributing 45% of this addition. In the aviation sector,passenger load factors (PLFsa measure for capacity utilisation) for nine major domestic carriers increased from 64% in January 2009 to 75% in January 2010.

The ports continue to have high turnaround times and congestion. Here too,the private sector is playing a critical role. The share of non-major ports (which are almost all private) in the traffic handled increased significantly from 27% in 2008-09 to 32% in 2009-10.

A slew of new initiatives were undertaken in the beginning of 2010 to give a fresh impetus to road development. With more than three-fourths of the construction under the National Highway Development Programme (NHDP) is envisaged through PPP (BOT or annuity),the highway expansion plan also hinges on private sector investment . Indias current urban population of approximately 365 million will increase by more than 60% in the next 20 years to reach 590 million by 2030. This rapid growth is exerting severe pressure on the already very low coverage and quality of basic urban infrastructure and services. The supply-demand mismatch offers several opportunities for innovative PPP-led development.

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Today,the country demands a certain level of infrastructure. However,economic growth is not yet widespread enough for a majority of the citizens to pay for that quality of infrastructure. It is imperative for all stakeholders private or publicto invest judiciously and implement effectively. A few success stories will provide significant impetus to the growth of this sector. Telecom has already showed us the way. Today,even a labourer carries a cell phone. Such is the market penetration. The sector is profitable enough to continuously attract large private investments.