INDIAN INFRASTRUCTURE: An Execution Noble - City of London position paper

Four perspectives :

• The equity financier
• The debt provider
• The builder
• The government

A reality check on Indian Infrastructure
The Government of India (GoI) has targeted an investment of US$500 billion in Indian infrastructure creation over FY07-12 in the XIth five year plan.

This target is ambitious, and given the scale of the financing required, increasingly dependent upon private sector participation via Public-Private Partnerships (PPPs).

The plan anticipates that the private sector will account for nearly 30% of infrastructure investment as against 18% in the previous five year plan.

That in turn implies that the private sector will invest US$150 bn over the five year period or about US$30 bn annually.

Assuming that equity will fund 25-30% for this US$30 bn annually, this means a US$7.5-10 bn equity infusion each year by the private sector.

Though the primary participants are expected to be Indian infrastructure companies, global funding in various forms such as private equity, dedicated infrastructure funds,

Foreign Direct Investment (FDI) or Foreign Institutional Investment (FII) will also be key sources of capital driving private investment in Indian infrastructure. Indeed in the roads sector alone, over the past year the Minister for Road Transport and Highways of India has undertaken several international ‘roadshows’ to highlight this investment opportunity and encourage foreign capital flows into infrastructure.

Where do we stand?
Mid-way through the FY07-12 plan, our discussions with a range of investors and data from various well known research bodies and consultants suggest that infrastructure investments for FY07-12 may not be more than US$350 bn as against the planned US$500 bn, a shortfall of 30% .

These sources highlight that both government-sponsored and PPP investments will fall significantly behind the estimated planned expenditure.

Given that Indian infrastructure has been promoted as one of the biggest opportunities globally, what has held back actual investments in Indian infrastructure? Is the cause a lack of capital, or are there other issues?

To read the full report: INDIAN INFRASTRUCTURE