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Infrastructure: Plethora of opportunities - Views on News from Equitymaster
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  • Apr 10, 2006

    Infrastructure: Plethora of opportunities

    It is a widely acknowledged fact that a world-class infrastructure is a necessity for faster and consistent growth of any economy in the world. And this applies for India too if it has to become a major world economic power. Thankfully, this realisation has started to creep into the minds of those who control the reins of power in India, which has consequently initiated the transformation of India into a land of opportunities, as far as the infrastructure sector is concerned. The potential here is enormous, as many infrastructure segments i.e. roads, ports, rail and air, are being opened up for private participation and investment. However, amongst these, the pace of reforms has varied significantly, due to commercial and regulatory issues. Consequently, the progress and opportunities varies across segments, some of which have been highlighted in this write-up.

    Roads - Readying for the ride
    Roads occupy an important position in India's transportation system, as they carry nearly 70% of freight and 85% of passenger traffic in the country. Presently, India's road network spans a distance of around 3.3 m kms. The focus of successive Governments on improving road connectivity across the country has brought about significant investments in road development in the last few years. As per the National Highway Authority of India (NHAI), total of 23,546 kms of roads would be constructed in the next two years. One of the most important programmes under the NHAI is National Highway Development Programme (NHDP). The NHDP consists of the Golden Quadrilateral, North-South and East- West Corridor, Port connectivity and other projects. Beside this, there are two Non-NHDP Projects, which include Pradhan Mantri Bharat Jodo Pariyogna (PMBJP) and the other is Pradhan Mantri Grameen Sadak Yojana (PMGSY).

    The government recognises the importance of private participation in development of roads in the country .It has thus framed requisite policy measures to encourage private investments in the sector. Some of the private sector participants in the road development are L&T, HCC and IVRCL. Besides this, in order to promote the involvement of private sector in the construction and maintenance of roads, the government has now decided to offer large number of projects on build-operate-transfer (BOT) basis. The importance of BOT in the national highway segment can be gauged form the fact that they carry more then 40% of the traffic even though they constitute just about 2% of the total road network in the country.

    Ports - Anchoring for growth
    India occupies strategic location on the global maritime map. Indian ports handle 95% of India's foreign trade in terms of volume and 70% in terms of value. The traffic handled at ports has been growing steadily over the past decade .The government has fixed an ambitious target of US$ 150 bn for exports by FY09 (current US$ 100 bn) to double India's share in world exports from the current 0.8% to 1.5%. Futher the Ministry of Shipping has projected India's port traffic to grow to a level of 850 MTPA by 2012 (from about 500 MTPA currently), which has necessitated major capacity expansion by Indian ports. Deregulation in the ports sector (100% FDI is allowed) and favourable terms of BOT have attracted domestic and foreign players to this sector. Further, private joint venture partners are being included to improve the operating efficiency of Indian ports.

    Railways On the right track
    Indian Railways is the largest rail network in Asia and the world's second largest under one management. The scope of public private partnership is enormous in railways, ranging from commercial exploitation of rail space to private investments in railway infrastructure. In order to have an integrated development of transport system, National Rail Development Programme was launched in December 2002 envisaging an investment of about US$ 3.5 bn in the next 5 years. The programme envisages removal of capacity bottlenecks in critical sections of railway network.

    Civil Aviation - Ready to take off
    Currently, the airport infrastructure in India is relatively less developed as compared to other means of cargo/passenger transport in the country. Despite the fact that the cargo carried by air in India constitutes less than 1% of the total cargo exported, it accounts for almost 30% to 35% of the total value of exports. Further, the importance of air transport cannot be undermined, as tourism is India's second largest foreign exchange earner. Further, with domestic air travel becoming more affordable, thanks to increasing competition consequent to the opening up of this sector, air traffic in India is witnessing rapid growth. Though the entry of low-cost air carriers has been a key factor that triggered this growth in civil aviation, India's economic upswing, increased FDI in various industrial sectors leading to higher business travel and the growing popularity of India as a tourist destination has all necessitated higher investments into the domestic aviation sector to meet the increasing traffic, which is projected to continue to rise 6% CAGR over the next decade.

    India, as one of the fastest growing economies in the world, has recognized the need for all round development in the important infrastructure sectors. With increasing political consensus towards reforms, clear policies and regulatory framework pertaining to investments in and development of infrastructure are being put in place. India, having established conducive policies for foreign investment, both with respect to centre and state projects, has gradually opened up as a preferred destination for infrastructure financing. Further, with innovative options of participation, there are now tremendous opportunities available in most of the sectors.



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