India : Perspective On Infrastructure Investments

1. India : Perspective On Infrastructure Investments Vinayak Chatterjee by Tokyo May, 2007

2. Indian Prime Minister, Dr. Manmohan Singh on Infrastructure “Many of my ministerial colleagues must have spoken to you about the challenges posed by the so called 'infrastructure deficit'. This area, apart from agriculture, is the one, which has been gaining our attention most. We have set up a Special Purpose Vehicle for raising dedicated long-term funds for financing infrastructure. We have moved away from a government-centered approach to a public-private partnership approach… [From the speech at the India Economic Summit, 2005] Slide 2

3. Indian Prime Minister, Dr. Manmohan Singh on Infrastructure (Contd..) …We have developed transparent, competitive procedures for such partnerships, which would function on commercial lines. We have established a viability gap funding mechanism for making these projects commercially viable. I am certain that we are now at the take-off point in infrastructure.” [From the speech at the India Economic Summit, 2005] Slide 3

4. Vision For Next 5 Years (2007-2012) • Approach Paper to the 11th Five Year Plan provides a ‘vision’ for the period 2007-08 to 2011-12. • On 18th October’06, Chairing a meeting of the Planning Commission, the Prime Minister set a target of 9% average economic growth for the 11th Plan. Slide 4

5. Gross Capital Formation in Infrastructure (GCFI) • The Planning Commission suggests that “investments will need to increase from 4.6% of GDP to between 7% and 8% in the 11th Plan period”. • This would entail an outlay of US$ 350 Billion across the 11th Plan Period (2007-2012). Slide 5

6. Investments Required in Infra in Next 5 Years : A Scenario (US$ Billion) Last Year This Year NEXT 5 YEARS(11TH PLAN) 2006-07 2005-06 2007-08 2008-09 2009-10 2010-11 2011-12 Total : 5 Years GDP* Growing @ 9% p.a. 718 853 930 1014 1105 1204 783 GCFI** Required as % of GDP 5% 5.5% 6.5% 7% 7% 8% 5.5% GCFI Required 47 60 70 77 96 350 * GDP 2005-06 (Market Prices) was Rs.3231,000 Crores = US$ 718 Billion ** GCFI = Gross Capital Formation in Infrastructure Slide 6

7. Size of the Opportunity Japanese Yen 40,000 Billion is thus the size of the investment opportunity for next 5 years in Indian infrastructure. Slide 7

8. General Pattern of Funding • World Bank sources tell us that in the 1990s: • 70% of infrastructure investment in developing countries came from governments or public utilities • 22% came from the private sector • 8% from official developmentassistance Slide 8

9. Perspective on Indian Infra Funding Sources (US$ Billion) Amount % Resources to be organized for infra investments in 11th Plan Period 350 100% From Private Capital (Domestic and FDI) 70 20% From World Bank, ADB, JBIC and other multilateral/bilateral agencies 35 10% From Public Expenditure 245 70% Slide 9

10. Sectoral Requirement of Funds (US$ Billion) Sector Amount % PPP Possibilities Energy 120 34 Railways 67 19 Nat Highways 49 14 Irrigation 18 5 Airports 9 3 Ports 11 3 Envisaged 274 78 Others* 76 22 Total 350 100 * Telecom, Tourism, SEZs & Townships, Supporting Urban Infrastructure, Water & Sanitation, State & Rural Roads, Logistics etc. Slide 10

11. Key Imperative ONE : Private Sector • PPP initiatives leading to a large pool of bankable projects. • Establishment of really “independent” Economic Regulators. Slide 11

12. Key Imperatives TWO : Overseas Development Assistance (ODA) Engage aggressively with multilateral agencies like • World Bank • Asian Development Bank and • Japan Bank for International Cooperation to secure commitments totaling not less than US$ 39 Billion for the 11th Plan period. Slide 12

13. Key Imperatives THREE : Public Expenditure • Structure large-scale projects (like Rail Freight Corridor, NHDP and Bharat Nirman) involving substantive public expenditure • Implement fresh ‘out-of-the-box’ initiatives to raise savings and resources for this purpose to a level of US$ 234 Billion. Slide 13

14. Key Imperatives Four : Long Term Financing Create vibrant equity and long-term debt markets for infrastructure financing. Consider innovative means to use forex reserves. Slide 14

15. Moving Forward • Project pipe-line creation • Inter-sectoral co-ordination • Project implementation monitoring • GCFI as key performance indicator • Creation of ‘independent economic regulators’ • PPP policies and dedicated PPP cells • Long-term debt markets • Political will and public mind-set to implement user-pay charges Slide 15

16. Mr. P. Chidabaram, Finance Minister “There is enough private capital jostling around the world. We will have to change our thinking to tap these resources. …………We will have to think out of the box. We will have to accept that we are part of the global economy. ……….” [Speaking at the Infrastructure Seminar, Vigyan Bhawan, New Delhi , 7th October’06] Slide 16

17. Welcome ! The Indian Infrastructure Sector welcomes participation across all areas by Japanese companies: • Advisory • Engineering • Project Management • Project Development • Construction • Financing • Operations & Maintenance Slide 17