Banking on India’s infrastructure investments.

The infrastructure sector in India is the latest avenue for growth to be capitalized on, in coming years as many large projects are lined up following government emphasize for the infrastructure development in the country.

The Ministry of Roads Transport and Highways has started the process of site selection for the mega roads projects, which are approximately of 500 kilometers and involving investments worth Rs.5000 crore.

Over the last one year (i.e. June 2009 – May 2010) the NHAI has awarded projects with a combined length of 7478 km and plans to award a further 12000 km in FY11.

Considering the need of the road infrastructure, the government has set a target for constructing 35,000 km of highways in the next five years under the National Highways Development Programme (NHDP), which will require an estimated investment of about USD 60 billion.

Out of this, USD 40 billion will come from the private sector. The National Highways Authority of India (NHAI) has estimated its annual borrowings from the domestic and international market to be more than Rs 4.3 billion for the next 15 years.

This would benefit not only to the large construction companies, but many small construction companies too will be benefitted from these as it is expected that the actual developers to sub-contract quite a lot of the work to smaller players.

In India, infrastructure funding remains a challenging task. The gross borrowings would be in the region of Rs. 1,92,000 crore. The double blow to the sector, the RBI had recently rejected priority status for road projects which is usually given to the borrower like farmers and small and medium industries.

However, the planning commission has recently proposed to set up a $ 11 billion fund to finance infrastructure projects in order to secure ample investments to implement the development plans.

The fund will be under a special company which will be owned by banks and financial institutions. The main objective will be to raise long term funds from domestic as well as overseas markets by issuing bonds.

Some of the most promising projects for the rapid growth in infrastructure sector include, Dedicated Freight Corridor (DFC), Mass Rapid Transit Systems (MRTS) and ports development.

In order to improve customer orientation and meet market needs more effectively, the Ministry of Indian Railways under its administrative control floated a special purpose vehicle (SPV) called, Dedicated Freight Corridor Corporation of India Ltd (DFCCIL) to plan, develop and mobilize financial resources and construction, maintenance and operation of dedicated freight corridors.

Having a total investment outlay of around Rs.50,000 crore, DFCIL, in its first phase, is constructing two corridors, i.e. Western DFC and the Eastern DFC, spanning a total length of about 3400 route km.

The corridor will link the ports of western India and the ports and mines of Eastern India to Delhi and Punjab. The Western route is funded by JICA (an agency of Government of Japan) the discussions are in progress to get the Eastern route funded through multi lateral institutes like the World Bank and ADB.

DFCs would provide opportunities for private participation not only in their construction but also in several related activities like development of logistics parks.

MRTS is yet another opportunity for mega infrastructure projects to be developed in India. According to Crisil Research, over the next 4-5 years, a total investment of Rs.619 billion in the MRTS segment is expected.

Of this the construction portion would be of around Rs.260 billion. Around 66% of this is expected to be on PPP model. In the long term (7-10 years), however, a total investment of Rs.2143 billion is expected. Of this monorail will account for 25% of the total upcoming MRTS projects and remaining will be metro rail.

Most of the civil works in MRTS projects currently under construction in the country is being executed by large Indian companies. Domestic contractors have an advantage of knowledge of local conditions and economical labor costs.

In India, a total of 13 cities have planned MRTS projects, of which construction has commenced in 4 cities. Among them, NCR leads in MRTS investments.

Among the key challenges faced while implementing these MRTS projects, land acquisition is the major issue.

Ports sector is the key area where not only the construction sector will get a boost but the key sectors including logistics and shipping would also get additional force to create opportunity for further investments.

India has 12 major and about 200 smaller ports that account for 95 percent of India's total trade in terms of volume and approximately 70 percent in terms of value.

India has huge potential in exports as well as imports as we aim for double digit GDP growth going forward. In April, container cargo were up by 23%, iron ore cargo and petroleum cargo were up by 13% and 1.3% compared to corresponding month last year.

The cargo movement is going to be benefited owing to increased export import trade of steel and increasing coal demand from power sector.

The government has Identified Investment need of US$12.4 billion in the major ports under National Maritime Development Program (NMDP) to boost infrastructure at these ports in the next 9 years. Under NMDP, 276 projects have been identified for the development of major ports.

Public-private partnership is seen by the government as the key to improve major and minor ports. 67% of the proposed investment in major ports is envisaged from private players.

As the mammoth size of projects lined up for infrastructure development in the country, a combined effort of public sector and private sector would help industry achieve greater milestones with increased participation and inflow of fresh investments.


Source : commodityonline.com