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Opportunities in infrastructure-V - Views on News from Equitymaster
 
 
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  • Jun 13, 2008

    Opportunities in infrastructure-V

    In the previous articles of this series, we had discussed the opportunities available across the crucial sectors (power, roads and telecom) in the infrastructure space during the XIth five-year plan (2007-2012). This article is concluding part of the series and here we will look at the opportunities available in the remaining sectors - railways, irrigation, water supply & sanitation, ports, airports, storage and gas.

  • Opportunities in infrastructure

    Planning Commission's allocation
    The Planning Commission of India (PCI) has allotted Rs 8.3 bn (assuming 15% spillover into the next five-year plan) as combined estimated investments in the sectors under consideration (in this article) as corresponding to Rs 3.2 bn in the previous five year plan i.e., the Xth plan (2002-2007). This translates to a combined increase of 160% in investments in these sectors. The table below shows the government's allocation to these sectors during the Xth (initial estimates) and XIth (proposed) plan periods.

    PCI's planned allocation to 'Other' sectors

    (Rs bn) Xth Plan % of plan XIth Plan % of plan Change
    Railways 1,197 13.6% 2,580 12.7% 115.6%
    Irrigation 1,115 12.7% 2,231 11.0% 100.1%
    Water Supply & Sanitation 648 7.4% 1,991 9.8% 207.3%
    Ports 41 0.5% 739 3.6% 1705.2%
    Airports 68 0.8% 347 1.7% 413.2%
    Storage 48 0.5% 224 1.1% 364.4%
    Gas 87 1.0% 205 1.0% 135.3%
    Subtotal 3,204 36.4% 8,318 41.0% 159.7%
    Grand total of planned investment 8,805 20,272 130.2%
    Source: PCI

    As we can see from the table above, the PCI has doubled the allocation (in absolute terms) in all the above-mentioned sectors combined. In percentage terms (as a % of total expenditure in the respective plans), however, all the sectors barring railways and irrigation have been given higher allotment during the current five-year plan. As such, these sectors combined have been allotted an increased share of 41% (of the total expenditure for the eleventh plan) as compared to 36% in the tenth plan.

    Distribution of public and private sector investments

    Share in expenditure Xth Plan XIth Plan
    Sector Public Private Public Private
    Railways 100% 0% 80% 20%
    Irrigation 100% - 100% -
    Water Supply & Sanitation 98% 2% 97% 3%
    Ports 53% 47% 26% 74%
    Airports 57% 43% 39% 61%
    Storage 30% 70% 50% 50%
    Gas 100% - 68% 32%
    Source: PCI

    Sector wise developments proposed
    Railways:
    During the Xth plan, the investments in the railways sector primarily focused on capacity expansion through modernisation and technological upgradation of the railway system, improvement in quality of service, rationalisation of tariff and improvement in safety and reliability of rail services. While these will continue to be an integral part of the current plan as well, the PCI has also laid emphasis on development of metro rail projects along with constructing a dedicated freight corridor along the golden quadrilateral route and among other legs of the same.

    Irrigation (including watershed): As one may have noticed from the above table, the irrigation sector is the only sector in which investments will be made solely by public entities. During the XIth five-year plan, emphasis is expected to be put on rural development especially with initiatives such as Bharat Nirman in place. In this sector, PCI has given importance to setting up of irrigation lines (major, medium and minor) among other developments such as command area development, flood control and watershed development.

    Water supply & sanitation: Investments in this sector, although majority shared by the public sector, are projected to increase to 10% of the total expenditure during the XIth plan (from 7% during the Xth plan period). This is mainly on account of increasing urbanisation. The PCI has mentioned in its report that in the past the capital allotted to this sector was not up to the mark and needed to be increased in both, rural and urban areas. Increasing urbanisation has led to a renewed focus on investments in urban water and sanitation facilities, especially through the initiative like the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). Out of the total expenditure in the eleventh plan, nearly 54% is projected to be spent towards improving living conditions in urban areas.

    Ports: Being advantageously located on the global map, India continues to play a significant role in the international trade arena and is likely to do so in the future as well. However, due to capacity constraints faced by the sector, major expansion and modernisation needs to be done to cope up and support the growth rates envisaged for the future. Recognising such opportunities and requirements, the PCI has increased investments in the port sector during the current five-year plan, by a whopping 17 times, the highest increase amongst all sectors (in absolute terms) over previous plan. Also, due to initiatives like PPP (public-private participation) (see above table), growth in this sector is likely to witness a boost going forward. As per the management of Punj Lloyd, the government of India has chalked out plans of developing 500 ports, both big and small, in the future.

    Airports: With India making its mark on the global map backed by acceleration in economic activity in recent times, the impact on the air transport has been a positive one. In fact, as against AAI's (Airport Authority of India) estimates of this sector growing at 16% over the past two years, the actual growth has been a much higher 26% per annum. And as such the investments proposed in the infrastructure (airports) have literally seen a 'take off' during the current five-year plan. Under this segment, the eleventh plan focuses towards modernisation, expansion and developments of airports throughout the country including developments in the non-metro regions. The airports redevelopment program has seen a positive and strong impact due the PPP initiatives by the Government. As we can also see from the above table, the ratio of public-private expenditure has shifted to 39:61 as compared to 57:43 in the previous plan. With the Delhi, Mumbai and Bangalore airports' modernisation completed, the other metro airports (Kolkata and Chennai) are next in queue for the same. In addition, the AAI has identified nearly 35 non-metro airports for developments during the current plan.

    Storage: Due to a shortage in storage and logistic facilities, the logistics sector has gained attention in recent years. In order to improve the supply chain in agriculture and to create large capacities in the storage sector, the private investment is projected at equal to public investment during the eleventh plan. In view of the low levels of capital formation in the sector in the recent past and the need to significantly step up investment in support of agricultural development, the PCI has increased allocation in this sector by over 360% of the previous five-year plan.

    Gas: Investments in the gas sector shall primarily focus on forming the gas distribution infrastructure. This comprises of LNG terminals, gas transmission lines and city gas distribution. Out of three, developments of gas transmission lines has been given priority investment of 78% (of total expenditure in this sector), while LNG terminals have been allotted 18% share and balance is expected to be spent towards city gas distribution.

    Although India is one of the fastest growing economies, it still has a long way to go when it comes to provision of quality infrastructure facilities to businesses and citizens. While there is a tremendous scope for improvement, the fact that execution has been an issue in the past cannot be denied. As a strong infrastructure setup is the backbone of any economy, we hope that the proposed investment plans are well implemented and executed on time.

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