labels: icici securities, investment - general
Study: India will see $51 billion of infrastructure investmentsnews
Pradeep Rane
20 September 2003


Mumbai: India will see $51 billion of infrastructure investments over the next three year in 2004-06, a 44-per cent surge over the preceding three-year period.

According a report issued by ICICI Securities on Indian infrastructure, "after six years of policy fine-tuning, India is poised at an inflection point in developing infrastructure." It is expected that there will be more private and foreign capital flowing into infrastructure projects in the country.

With soft interest rate regime and several legislative issued addressed various infrastructure projects like roads, power and port will attract huge invests in the coming days. It said that 43 per cent of the spend pie will accrue to the power sector and 20 per cent for roads with a consequent multiplier effect on the economy, the report said.

Also tenders for NESW corridor highways, several ports, and at least two airports will also be issued during this period. Already there is momentum in highways, ports and power generation, where a successful track record has fostered a virtuous cycle of more success, it said.

Power transmission and oil and gas have emerged as swing sectors due to an emerging clarity in public-private models and regulatory framework for transmission and distribution of power, pipelines and refinery modernisation.

However, investments in telecom could plateau after the phase of aggressive rollouts, the report said. "There is convergence of public policy and political view that the way ahead is by development of better infrastructure that can facilitate and propel growth."

Infrastructure finance has been gathering pace but it accounts for less than a third of the total bond issuance and just 6.5 per cent of the bank credit to industry. Some of the companies that are going to benefit are ABB, BHEL, Gujarat Ambuja and L&T.

In order to attract private and foreign capital, business models for infrastructure projects need to be more market-oriented and based on commercial principles, the report pointed out. "For every Dabhol project which suffered, there are early stage success stories such as Delhi's power privatisation, Noida Toll Bridge, Konkan Railway and the JNPT P&O container terminal."

Several leading domestic and private and public sector companies like Reliance, the Tatas, NTPC, Power Grid and IOC are coming into the sector in a big way. The main issue dogging infrastructure projects in India has been the pricing framework, as most of these services have an element of direct subsidy or cross-subsidy built in the tariff structure.

The setting up of the Rs 61-billion Central Road Fund (CRF), incentives in the form of tax breaks, permission for 100-per cent foreign direct investment and three innovative financing methods (BOT, Annuity and SPV) should ensure that the road sector will progress.

Importantly, the linking of national highway projects with state highways and rural roads are also being addressed simultaneously by most state governments. This augurs well for eventually moving to a synchronised tolling structure from the present practice of segmental tolling.

 

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Study: India will see $51 billion of infrastructure investments