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The Infrastructure Opportunity: A Macro Perspective

This article by Rajiv B. Lall, Managing Director & CEO of Infrastructure Development Finance Company Limited, discusses the infrastructure investment landscape in India, focusing on the shift towards private-led development, challenges, reforms, and opportunities for financing. It also highlights successful case studies such as the telecom sector reforms and outlines investment opportunities in highways, railways, ports, airports, and power generation. The author presents the role of IDFC, a key player in project finance and investment banking for the infrastructure sector, and emphasizes the potential for public-private partnerships in driving innovation and growth.

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The Infrastructure Opportunity: A Macro Perspective

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  1. THE INFRASTRUCTURE OPPORTUNITY : A MACRO PERSPECTIVE Rajiv B. Lall Managing Director & CEO Infrastructure Development Finance Company Limited JAPAN MAY 2007

  2. The Context : India vs China • Consumption vs Investment led growth • Bottom Up vs Top Down • Private vs Government led build out of infrastructure

  3. India Infrastructure Investment (% of GDP) 33 Year Low

  4. INFRASTRUCTURE SPENDING & FINANCING (% OF GDP AT CONSTANT 2005 / 06 PRICES) ~ $ 360 billion over 5 years or > $ 70 billion / year • Bulk of spending will have to come from non-government sources. • Will need an average of at least $ 5 billion a year in overseas funding just for infrastructure over next 5 years.

  5. Sustainable Reform & Infrastructure Development Reform Impulse “Tipping Point” Competition Resistance from incumbents Declining Cost Support from consumers Irrevocable change sustainable reform

  6. Telecommunication Reforms • Telecommunications • In 1994 – Telecom policy – mobile phone licenses for major metros (2 in each city), followed by licenses for mobile and fixed line services in 15 circles (1 each) – major imbroglio due to unrealistic bidding • Resolved by a New Telecom Policy in 1999 – migration to a revenue share regime, more players, universal access service – challenge now is rural connectivity • Regulator (TRAI) established – initial hiccups but now functioning well • Private investment has grown the market - over 200 million subscribers; growing at over 5 million per month • Prices – mobile from 37 cents per minute to 0.01 cents per minute

  7. Mobile Growth and Effective Charge per minute Source : TRAI (2005C and 2006C)

  8. Foreign Direct Investment Source: Investing in India-FDI Manual, DIPP

  9. Opportunities • Highways : $ 48 billion • Total emphasis on BOT roads • NHDP 1 to 7 (40,000 kms of new road) • Railways : $ 12 billion • Private container trains • Dedicated Freight Corridors • Logistic Parks / Railway Stations • Ports : $ 12 billion • Concession at major ports and development of minor ports • Airports : $ 9 billion • Delhi, Mumbai, Bangalore, Hyderabad, Chennai, Kolkata & 35 non-metro airports • Power : $ 130 billion • Generation and transmission • Wind, hydro

  10. IDFC : Who we are • Project finance : Debt, Sub-debt, Mezzanine • Equity Finance – principal investments and asset management • IDFC Private Equity – 2 funds aggregating USD 630 million • Project Equity Funds USD 1 billion by March ’08 • Investment Banking and Advisory Services • Focus areas : Energy, Telecom, Transport & Industrial / Commercial Infrastructure • Total Loan Assets of close to USD 4 billion + USD 0.5 billion in equity investments • Market cap : USD 2.2 billion • Track record of performance and consistent growth • 25% of the loans to private infrastructure projects • Net Non Performing Assets: Nil • FY 2002 – 2007 CAGR in Balance Sheet – 42%, Infrastructure loans: 48%, Total Income: 31%, PAT: 22% Unique Public Private Partnership delivering innovative financial solution to Indian Infrastructure Sector

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