2. Infrastructure Growth Map in India

Transcription

1 2. Infrastructure Growth Map in India 2. Infrastructure Growth Map in India 2.1 Assessing Past Growth 2.2 Mapping Infrastructure Growth Need for India 2.3 Major Infrastructure Growth Bottleneck in India 1

2 Infrastructure in India 214: Evaluating Existing and Upcoming Opportunities Introduction The global competition among the various geographies of the world is heating up fast and the economies are struggling hard to be at the top of this hot cake of economic growth & infrastructure development. The need and urge for infrastructural development is mounting more pressure especially on the both the developed & developing economies to be in the league. The litany of infrastructure challenges confronting nations around the world is well known. Advanced economies face the challenge of maintaining & upgrading their infrastructural facilities as growth flags where as the developing economies dedicate a significant percentage of their national income just to meet the basic human needs like access to water & sanitation, meeting the electricity requirements, strengthening the roads connectivity etc. China s infrastructure investment of nearly 2% (213) as a share of GDP bears a testimony to this. Whereas the country like US invests an amount of -6% of its GDP for infrastructure activities. The correct approach in delivering and maintaining all the facets of infrastructure are essential to create a strong and competitive economy. On the contrary, a weak infrastructure can badly impede its growth. Hence it may not be incorrect to mention that if infrastructure presents unique challenges, it also offers wide opportunities for growth. In India too, infrastructural development has always been a challenging issue. The challenge is becoming even more daunting as the need for rapid growth of the Indian economy is swelling more pressure on the government in meeting the infrastructural needs of the country. As a resultant, the 12 th Five Year Plan (FYP) is targeting an investment of 1% Indian infra as a percentage share of GDP. It is pertinent to note that an investment of close to INR.7 lakh crore is planned covering all facets of infrastructure in 12 th FYP. Out of the total close to 48% of the investment is to be induced by the private sector. Hence, a great market opportunity exits for the private players both of the domestic and international origin in the infrastructure domain. Along with India, many other developing countries of the world have pulled their socks up and are offering wide opportunities for private players to invest in their infrastructure sector. Geographies like China, Brazil, Indonesia etc are all focusing on their infrastructure expansion to support their growing economies. Given below in Figure 2.1 is the current status of investment in infrastructure in some of the developed & developing economies of the world. Figure 2.1: Investment in Infrastructure Across the Globe (As a Percentage Share of Global GDP) in % 7. % 6.7% Asian region is the world s largest investor in infrastructure 3-4% Investment below 3% Investment 3-% Source: HIS Global Insight, Mc Kinsey, SNP Infra Analysis Investment -8% Investment Above 8% 2

3 Infrastructure Growth Map in India India s urge to achieve high growth targets and in order to compete with the other fastest growing economies of the world, the country is largely investing in its infrastructural facilities. And is also contributing significantly in the global infrastructure investments. The country invests close to 6.7% of the total global GDP in infrastructure in 213 which can be observed in Figure 2.1 as well. Although, China takes the lead in being the world s largest investor in infrastructure but India too is struggling hard to bridge this gap. It is pertinent to note that the at present India has positioned itself among the top six global emerging markets for public private partnerships in infrastructure (PPI). These emerging markets attracted nearly USD 137 Billion from total PPP commitments in the developing world in 213 indicating a decline of 24% in total PPI in that year. The contribution of India along with the other countries of the world can be seen in Figure 2.2. Figure 2.2 : Six Global Emerging Markets and their Reach to PPI in Infrastructure Sector, 213 The total PPI increased from USD 1 Billion in 212 to USD 12 Billion in 213 in Mexico. Russia to witness a drip in the PPI in 213. The tune of such investments declined to USD 8-9 Billion in Investment commitments in Turkey increased upto USD 14 Billion, due to strong activity in energy sector % 6 7. % Though China is the largest investor in infrastructure across the Asia-Pacific region but the tune of PPI is comparatively low. It was estimated to be close to USD 8 Billion in 213. Significant drop of 68% in private investment was witnessed. Investments in transport sector dripped down to even less than USD Billion in 213 from USD 2O Billion in 212. Though maximum but, Brazil too witnessed a downfall in PPI s from USD 7 Billions to USD 3 Billions in Ranks Nations facing increase PPI s Nations facing decrease PPI s Source: World Bank PPI Database, SNP Infra Analysis 3

4 Infrastructure in India 214: Evaluating Existing and Upcoming Opportunities 2.1 Assessing Past Growth India s struggle in competing with the fastest growing economies across the globe is still on as the country is focusing hard on strengthening its infrastructural set up. The country is investing big time in creating, maintaining and upgrading its infrastructure facilities and for the country to lead the league is no distant dream now. The infrastructure investments in the country has witnessed an increase of more than INR 2 lakh crores in past 1 years bears a testimony to the above statement. A further expansion in the tune of investments is projected for the upcoming years and is expected to increase by close to INR 3 lakh crore by 217. The infrastructure sector in the country has grown tremendously over the years and the investment into the sector has increased at a CAGR of 28% from The past trends indicates that of the total infrastructure investments in the country, expenditure on boosting the power sector has always remain of utmost importance. In the 12 th FYP as well the sector shares a huge percentage of 31% in terms of overall investments. Apart from power, significant tune of investments have been made in strengthening the transport network of the country. It is noteworthy that more than double expenditure has been done in constructing and maintaining the roads & bridges infra of the country in past 6 years and the investment has reached upto a level of INR 1.6 lakh crores in 213 from INR 1.8 thousand crores in 27. At the global level too, to efforts made by India in face-lifting the quality of infra is duly recognized. As along with government, many private investors have shown their keen interest in the sector. The public private participation in Indian infrastructure at the global platform can be observed from Figure 2.3. Figure 2.3: Past Trends in Global PPI: Investment Trajectory in India Coupled with Rest Five Emerging Markets, Russia Mexico 1 Brazil 2 1 Turkey India 6.7% China Year 212 has proved to a turning stone in the investment trajectory of above mentioned geographies. As observed,post 212 the PPI has either increased significantly or has dropped down notably. Source: World Bank Infrastructure Database, SNP Infra Research 3

5 Infrastructure Growth Map in India Figure 2.4: Ratings of the Infrastructure Quality in India at Global Platform: Observing the Past Trends Assessment of infrastructure facilities considering the quality of transport, telecom and energy infrastructure on a scale of 1-1. Finland 3 24 UK Russia Switzerland Japan USA France 1 87 India China 46 Hong-Kong 4 India s rank has deteriorated from 84 to 87 because of severe under penetration in 76 most of the sectors such as: Brazil 2 Singapore Installed Generating Capacity Per Thousand People,213 Proportion of Unpaved Roads, Electricity 173 Road Transport India China Ranks Scale Source: World, Economic Forum, BCG, SNP Infra Research Analysis

6 Infrastructure in India 214: Evaluating Existing and Upcoming Opportunities With increasing need of the growing population, an expansion in all infrastructure facets is continuously taking place in India. To further support this growing trend huge expenditure across the infrastructure segment is required. The government of India has been constantly pouring in large volume of money to fasten the rate of infrastructure activities in the country. A planned increase in the government spending of INR 23 lakh crores from 27 to 217 bears a testimony to the fact which can be observed from Figure 2.4 as well. Figure 2.: Infrastructure Investment in India : Plan Wise Statement Investments in INR Lakh Crores An upward trend in the Indian Infra investments have been witnessed as a percentage share of GDP. During Xth FYP close to.2% of the GDP was spend for infrastructural development which increased to 7.% in XIth FYP. And is further expected to increase upto 1% by the end of XIIth FYP. 1 Total Xth Plan XIth Plan XIIth Plan* Private Public Note: * signifies projected Source: Planning Commission, SNP Infra Analysis Figure 2.6: Past Trends on Infrastructure Spending in India: Covering its Key Facets 4 Investments in INR Thousand Crores Road & Bridges Power Airport Railways Ports Telecom In order to meet the soaring power demand of the country, maximum percentage of GDP is spend on fulfilling the electricity needs. The investments to strengthen the power infrastructure in India has grown at a CAGR of 23.17% from Where as ports & airports still struggle cater much attention and has witnessed a dwindling growth trajectory. Source: Planning Commission 6

7 Infrastructure Growth Map in India Power, telecom, transport, highways etc are considered to be the key facets of infrastructure in any economy which contribute nearly 6% to the economic growth. In India too, to pace the rate of growth a big chunk of national income is spent on strengthening these key aspects of infrastructure. The need for urbanization and industrial expansion has continuously mounting pressure on the Indian government to encourage more investments in these domains. Hence there exists wide opportunity for private players to invest. As it can be observed from Figure 2. an upward trend has been seen in the growth of investments for power, telecom and roads & bridges sectors, which involves a greater degree of private participation into it. It is pertinent to note that the private participation of INR 1. lakh crores has been witnessed in the Indian power market in 213 which supported nearly % of the total spending done to raise the power infra in the same year. Also, there are very positive prospects for the sector to grow more in upcoming years and hence will fetch huge tune investments both from the private and public entities. Figure 2.7: Infrastructure Picture in India: Region wise Study (24-214) Northern Region Excellent Weakest infrastructure belt in India. High underdeveloped with negligible PPI. Good Poor N. Eastern Region Excellent Western Region Good Eastern Region Excellent Poor Excellent Good Poor Good Poor Southern Region Strongest infra belt in India. Gujarat is the key contributor to the total infra set up not even in Western region but in India as well. It is pertinent to note that the infrastructure sector in Gujarat contributed nearly 11-13% in the state s GDP. Excellent Good Poor Note :The evaluation of infrastructure development across the four regions is done on a scale of 1 with the rating criterion as follows : Excellent : 8 & Above Good: 6-7 Fair: 3.- Poor: 3 & Below Social Infrastructure Economic Infrastructure Industrial Infrastructure On Scale Evaluation Source: SNP Infra Analysis 7

8 Infrastructure in India 214: Evaluating Existing and Upcoming Opportunities 2.2 Mapping Infrastructure Growth Need for India Increasing population, need for urbanization and the urge for pacing up the growth of industrialization in the country is fueling the demand for uninterrupted infrastructural facilities in the country. Hence the Indian government is not keeping any stone unturned to pull up the tune of investments into the sector. The Indian population has grown at a CAGR of 3-4% from 24 to 214 and is estimated to grow further and that too exponentionally. It is projected that the head count in India would increase up to 3 billion by 222. To cater the needs of this soaring population a significant increase in the infrastructure growth is also required. Hence the government has targeted huge tune of investments to fasten the infrastructure development in the country. It is pertinent to note that an investment of nearly USD 1 Billion is what the government has targeted to pour in by the end of 217 which may give a new dimension to the infrastructural set up in the country. The upcoming year wise planned investment in the infrastructure sector can be seen in Figure 2.7. Figure 2.8: Planned Investments for the Upcoming Years in 12 th FYP High E E Average Low Considering the government s vision of Power to all, very high investments in the power sector are planned throughout 12 th FYP. The electricity sector attracts an investment of close to INR1 Billion during 12 th FYP. The reforms that have taken place in the telecom industry is a big motivating factor for investments into the sector to tip other segments of infrastructure. Further, the announced 4G spectrum is another driver for attracting more players and investments into the segment. Hence it can be observed that an increase of 3% is projected in the tune of investments for telecom sector in the next fiscal which would scale the total investments upto INR 2.3 Billion. Electricity Roads& Bridges Railways Irrigation Ports O&G E stands for estimated RES Telecom MRTS Water & Sanitation Airport Source: Planning Commission, SNP Infra Analysis 8

9 Infrastructure Growth Map in India Infrastructure is the backbone of any economy and is arguably the single most factor that separates the leaders from the laggards. The right infrastructure not only ensures an effective supply chain and key inputs feeding into the manufacturing process, but also creates a seamless link across production hubs and end markets, both domestic and global. Over the past few decades the momentous growth rates have fuelled India s emerging economic prowess in which infrastructure has played a vital role. Further, the high economic growth rates of 9-11% which India is aiming at 1 years down the line could not be achieved without improving the quality of infra assets in the country. Such a high economic growth would drive the rate of urbanization and industrialization in the country and hence the need for a strong infrastructure set up is quintessential which can be observed from Figure 2.8. It is significant to note that the nearly 4% of the total population in India is projected to increase the burden on the urban lands and hence in order to reduce this burden, fostering the growth of infrastructure is equally important. Figure 2.9: Mapping the Need for Infrastructure in India: Scenario Wise Projections Optimistic Scenario Business-As-Usual Scenario Pessimistic Scenario HCN EC UBN IDN HCN EC UBN IDN HCN EC UBN IDN <1 Growth Rate in Percentage > 2 Low population growth of 2-3% would reduce the burden of creating similar kind of infrastructure facilities. High population growth of 8-1% would discourage the growth of new & modernize infrastructure in the country. Infrastructure Need Tune of Investments (INR Billion) INR Billion INR Billion INR Billion HCN: Head Count Number EC: Economic Growth UBN: Urbanization IDN: Industrialization E: Estimated High Low Moderate E 22 E (Addition) 22 E (Total) Source: SNP Infra Research Analysis 9

10 Infrastructure in India 214: Evaluating Existing and Upcoming Opportunities Undoubtedly, increasing population growth pumps the requirement for more infrastructure facilities but also impedes the quality of infrastructure assets. It is so because, with swelling population, need for similar infra assets would also increase and hence more expenditure would be done on creating such assets and less emphasis would be given on creating new and developed infrastructure facilities. Hence, increasing head count number could hamper the growth of infrastructure in India which can be observed from Figure 2.8 as well. The figure describes the scenario wise projections for infrastructure requirements in India. Optimistic Scenario: This scenario is considered to be a case when there exits High economic growth, high urbanization along with paced industrialization. The Make in India vision of the Indian government, if becomes reality would upbeat the economic growth of the country in a bracket of 9-11% in upcoming years. Such a high growth would drive the rate of urbanization and would scale up the level of industrial expansion in the country providing a wide market space to the players to invest. Hence, such a manufacturing led transformation would pump the infrastructure development in the country. Thus, would increase the tune of infrastructure investments 2. times more than the current spendings by the end of 22. Pessimistic Scenario: This scenario is considered to be a case when there exits Low economic growth with low urbanization & weak industrial expansion. Undoubtedly, India is having high aspiration in out casting itself to be among the global leaders. But unfortunately, the country presently lags behind in providing even the basic infra facilities to its inhabitants. Further, with a continuous increase in the population the situation is becoming more challenging. If such a trend follows in future as well, it may badly hit the economic growth of the country. Under such a situation, the growth prowess of India may come down to 2-4%, impeding the growth of urbanization and industrial set up in the country. Hence, a decline in the infrastructure activities would be witnessed in such situations as it may disinterest the players to invest into the sector. Thus, a decline of close to % could be witnessed in 22 from the current spendings. Business- As-Usual Scenario: This scenario is considered to a case when Same economic growth, with similar rate of urbanization and industrialization exits. There are possibilities for India to grow at the current rate of -6% in 22 as well due to the same course of regulatory and policy mechanism followed by the Indian government. This may not fuel the rate of industrial expansion to a higher level but would also not deviate the country from the current growth of industrialization. Hence, in such situation the requirement for infrastructure development could considered to be moderate in 22. 1

11 2.3 Major Infrastructure Growth Bottlenecks in India Figure 2.1: Key Impediments to Infrastructure Development in India Infrastructure Growth Map in India Land acquisition & delays in seeking clearances 2. Weak financing mechanism 3. Inefficient regulatory framework One of the biggest roadblock for the development of infrastructure Continuous resistance from the local communities has proved to be potent force and has led to delays in infra projects Additionally, the project clearance process is too complex and lengthy that it disinterests the private players to invest. From close 6% of the PPP road projects witness delayed financial closure. The infra projects cater large tune of investments These projects are largely capital intensive and have a high gestation period Most of the commercial bank s and financial institutions have reached their exposure limits for funding such projects Their ability to lend is further constrained by slow mobilization of deposit Hence weak financing mechanism is one the major bottleneck restricting the private players to invest in the Indian infrastructure industry Most of the infra projects in India suffer from delays in completion due to inadequate regulatory framework and inefficiency in the approval process The various categories of approvals required across the project cycle at every stage right from pre-tendering to post construction is cumbersome Most of the large projects involve dealings with various ministries, but there exists difference in the perspective of various departments and hence the co-ordination remains in efficient Uneven private participation. Governance related constraints 6. Inefficient pricing of infrastructure assets Though India has witnessed a tremendous increase in the share of private participation but its still uneven The presence of private players in the infrastructure sector is very limited to specific segments Hence, many of the infra facets are still under developed.hampering the over all infrastructure development in the country Growth of infrastructure sector in India also suffers due to lack of transparency in the project awarding process. Further, at the policy front no such course of action has been witnessed to pace up the growth of infrastructural development in India. There has always been an unequivocal linkage between the problems of attracting private investment in infrastructure and price fixation of infrastructure services This represents a major challenge for the policy strategy during 11 th & 12 th FYP In some segments the prices are competitive enough to attract more players into the market where as on the other the regulated prices announced by the government restricts the investors to enter the market. 11