X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Infrastructure: PPP is the key! - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Infrastructure: PPP is the key!

Mar 28, 2007

Low spending on infrastructure has been holding back India's average growth with the actual amount spent being miniscule compared to the requirement. The gap is evident in almost all areas of infrastructure, including roads, airports, seaports, railways, electricity and industrial clusters/estates.Lack of reforms led to stagnant investments between FY98 to FY03. Political scenario, no private-sector investment, lack of funding for new projects and government regulations did not encourage investments in infrastructure. Fresh investments were led by government spending, which was constrained by its huge fiscal deficit and lack of alternate means of financing the infrastructure. Also the private sector did not participate in the infrastructure segment mainly due to unfavorable regulations and higher interest rates. Moreover, funding infrastructure projects was a major issue for the private sector. As a result, barring a few exceptions in the power and port segments, the private sector was largely inactive.

However, the government in the last couple of years has become increasingly aware that to sustain the economic growth at an annual rate of 8%, infrastructure development will have to play a very important role. Concomitantly, investment in infrastructure is estimated during the Seventh Plan period (2007-2012) has been pegged at US$ 320 bn (Source: Committee on Infrastructure, Government of India).

Infrastructure investment required (2007-12)
 (US$ bn)%
Airports 92.8
Railways123.8
Ports123.8
Roads4815.0
Power20062.5
Others3912.1
Total 320100

Fiscal deficit and increased spending in the social sector, which affects the investment in infrastructure, has to necessarily be supplemented by public-private partnerships (PPPs) and in many cases exclusive investment by the private sector. To sustain the growth, additional 2.5% to 3.0% of the GDP spending is required to be invested in infrastructure. Hence, the need for the private sector investment is inevitable.

Seeing the bad state of the government finances, private sector has to play a very pivotal role in development of infrastructure. As long as public investment remains robust, the private fixed investment would continue flowing. While public sector reforms in the power and highways sectors are gathering pace, it is inducing a large pick-up in private sector capacity expansion in the production of power generating equipment, cement, transport, and construction machinery sectors.

India has the fifth highest value of PPPs of any developing or transition country but one of the lowest as a share of GDP. Until recently, greater part of the investment is done by the public enterprises with no private participation. Much of the private investment in India has arisen in the past five years at a CAGR of 22.6% in the period FY00 to Fy05, as compared to 22.2% CAGR between FY91 to FY05.

Global public-private partnership (PPP) deals
CountryUS$ bn% GDP
Brazil17432
China724
Mexico 7010
India518
Malaysia4841
Philippines3637
Indonesia3213
Thailand2918
Colombia2022

We believe that going forward infrastructure development will be across sectors, and will witness investments by both public and private sectors. Private-sector participation (PPP based projects), in particular, would increase dramatically over the next few years. Growth is likely to be driven by acceleration in investment spending and stable consumption growth. The power generation, cement, capital goods, and construction equipment and services sectors are on the radar of investment spending and growth.

Though the public sector will continue to be the major source of funds for investments in infrastructure, active participation from private sector would be imperative. However, reforms on institutional and political level will be needed to let the private investment be an important player in the development of infrastructure.


Equitymaster requests your view! Post a comment on "Infrastructure: PPP is the key!". Click here!

  

More Views on News

BSE Sensex at All Time High; RELIANCE IND. Among Top Gainers (Market Updates)

Apr 18, 2019 | Updated on Apr 18, 2019

The BSE Sensex is trading at its all - time high of 39,382(up 0.3 %).Among the top gainers in the BSE Sensex today are RELIANCE IND.. In the meantime, the NSE Nifty is trading at 11,821(up 0.3 %).

Election Series: Why 'Liquor' is so Important to the Elections (The 5 Minute Wrapup)

Apr 19, 2019

When elections come around, liquor flows like water and everyone gets drunk with power...what does this mean for liquor stocks? Read one to find out from our very own election trading analyst, Vijay Bhambwani.

What Led To Gush Of Inflows In Equity Mutual Funds In March 2019 (Outside View)

Apr 18, 2019

As compared to net inflows of Rs 3,948 crore in the equity category during February 2019, the inflows for March 2019 were strong at Rs 9,014 crore.

Election Series: The One Segment That Is a Must-Watch Post Elections (Profit Hunter)

Apr 18, 2019

When goods are handed out by benevolent politicians during election, aspirational goods such as two wheelers often end up winners, says our very own trading analyst, Vijay Bhambwani.

Key Reasons To Start Tax Planning Early This Financial Year (Outside View)

Apr 17, 2019

If you engage in Tax planning from the beginning of the year you will not do ad hoc investments.

More Views on News

Most Popular

Stocks that Could Be Out of Reach Post Elections(The 5 Minute Wrapup)

Apr 9, 2019

It's a matter of time before the stocks catch the fancy of the markets and big investors.

3 Indian Stocks with Amazon-Like Potential(Profit Hunter)

Apr 10, 2019

We have identified 3 stocks with huge wealth building potential which meet our 'Click of a Button' criteria.

A 90% Chance of Auto Stocks Moving Up This April(Profit Hunter)

Apr 5, 2019

The Auto index ended on a positive note in the month of April in 9 out of last 10 years. This Auto stock is best placed to benefit from the upswing in this sector.

This Company is Making a Big Comeback and You Can Now Profit from Its Example(The 5 Minute Wrapup)

Apr 10, 2019

How Dell got its mojo back.

This is Why the Stock of Jubilant FoodWorks Went Up 1,160%(The 5 Minute Wrapup)

Apr 12, 2019

This critical business strategy has enabled companies to scale their operations faster.

More

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Apr 18, 2019 (Close)

MARKET STATS