Indusrty Research A Report Submitted For External Assessment On Project Topic: Opportunity Analysis in Infrastructure Industry in India

Industry Research - Infrastructure Industry
INDUSRTY RESEARCH
A Report Submitted for External Assessment on
Project Topic: Opportunity analysis in Infrastructure Industry in
India.
Under The Guidance Of
Mr. Sarjit Singh Yadav, GM Rathi Bars LTD
NEW DELHI
STUDENT NAME: ISHMEET SINGH KOHLI
BATCH: UGP FW 2007-2010/ PGP FW 2008-2010
Ph.: 9999971855
EMAIL: ishmeet_800855@yahoo.co.in
Page 1 of 34
Indian Institute Of Planning & Management UGP-FW/2007-2010
ACKNOWLEDGEMENT:
At the onset we would like to express our enormous gratitude towards General Manager of
Rathi Bars Ltd. ‘Mr. Sarjit Singh Yadav’ for his continuous encouragement and guidance
throughout our research work. His approach helped us converting ideas into definable results.
We thank him for his timely guidance.
Page 2 of 34
INDEX
S.No. Contents Page No.
1. Abstract 4
2. Introduction 5
3. Urban\Rural Scenario 5
4. Cost Factor 6
5. Classification of Indian Infrastructure 9
6. Govt Initiatives 17
7. Opportunity Analysis of Indian Infrastructure 21
8. Challenges to enter the Indian Market 28
9. Building a sustainable future in India 32
10. Concluding thoughts 33
11. Bibliography 34
Page 3 of 34
Abstract
The infrastructure industry in the recent past has shown tremendous growth, in tandem with the
growth of the Indian economy and it will not be wrong to say that both the industrial growth and
the economic growth are interdependent. The report highlights the performance of the Indian
Economy with specific reference to its performance during the last year. This performance led to
the growth of Infrastructure sector and also, this performance was due to the growth of the
infrastructure sector in India. This also includes the opportunities this sector presents to the
companies working within the framework of this industry. The infrastructure sector is then
detailed with insights into the key segments for urban infrastructure industry such as; roads,
ports, airports, SEZs, real estate, as to how they are structured, what are the various initiatives
taken by the government for the development of this sector further.
The industrial infrastructure activities mostly in the fields of pipelines and turn key industrial
units in addition to some works in the roads and highways sector. The strategies suggested are
generic and thus can be adapted by organizations having similar scope and activities within the
same industry.
Page 4 of 34
Introduction
A nation‘s infrastructure development plays a significant role in its economic growth. A fast
growing economy warrants an even faster development of infrastructure. Any discussion about
India‘s infrastructure has to briefly cover the planning carried out for the country‘s economic
growth, since Independence.
India is the world‘s largest democracy in terms of population, with India‘s Central Statistical
Organization estimating a population of 1,150 million people as at March 31, 2010. According to
the World Bank, India was the eleventh largest economy in the world in the year ended March
31, 2010, with a GDP in nominal terms estimated to be US$ 1242 billion.
The Rural/Urban Scenario

Today, the rural population accounts for nearly 70 per cent of the total population and nearly half
of them still live in poverty and illiteracy. How good is the rural infrastructure? The latest report
of the National Sample Survey Organization on village facilities is a revelation in itself. To quote
from the report, ―One fourth of our villages do not have electricity; only 18 per cent of them get
tap water; 54 per cent of them are more than 5 km away from the nearest health center; one third
of them do not have pre-primary schools and 78 per cent do not have post offices‖! Yes, ―India
still lives in its villages‖.
The cities shelter around 30 per cent of the population who contribute to the economic growth.
However, the most vital part of economic growth, which is infrastructure, hardly matched the
demands of even this 30 per cent of urban dwellers, spreading chaos at the slightest provocation
with the danger of turning the clock backwards.

Page 5 of 34
The Chinese tales
The Chinese success stories are told and retold by many. Can India set her standards by looking
at China? Can one draw a parallel between those mega cities with the Indian ones, or its
infrastructure development for that matter? It is debatable. However, what can be compared is
the Chinese commitment. Look at their endeavors in making the Expressways. According to a
recent newspaper report, when India completed 6000 km of her Expressways in six years, China
had done 40,000 km within that time. Even today the Indian government endlessly debates the
privatization of airports. At least some of the analysts perceive a ‗damaging drag‘ on the
economy due to problems connected to infrastructure. Growth potential is dependent on the
quality of performance of infrastructure to a great extent - a fact the Chinese realized much
earlier than us. The fast growth of this Socialist country is extremely relevant.
The cost factor

There is a cost factor involved in developing the country‘s infrastructure. Funds are required and
so is innovation. The government should allow private participation in this area. The political
class should create an environment where investors feel confident of recovering their costs and
the cost of capital. It is the country‘s politics that has to decide whether ―only the fools should
pay for infrastructure‖ as in the case of our power generation. Distribution has to be set up where
it has not been successful in arresting power theft and losses. The practical solution would be
allowing private players to build and manage the infrastructure and let the users pay for the costs.
One successful endeavor on this front is the model city coming up near Gandhi nagar, the capital
Page 6 of 34
of Gujarat on the Sarkhej – Gandhi nagar Highway. It was being built under private
entrepreneurship - something worth emulating elsewhere in the country. This model does not
have to apply just to cities, but anything really. However, these decisions call for a strong
political will.
Ever since the Indian economy opened up its doors to globalization in 1991, it started realizing
the importance of building a robust infrastructure. After all, more industries in well-developed
industrial areas mean increased employment opportunities. Well-laid roads, airports and sea
ports offer faster surface/air/sea transportation. The Ministry of Civil Aviation decided to
develop 43 new airports by the end of 2010. According to Planning Commission, India‘s air
cargo movements would grow at CAGR of 11.5% from 2007-08 to 2011-12. Under National
Maritime Development Program (NMDP), there are around 276 projects in the major ports for
the construction/up gradation of berths, deepening of channels, rail/road connectivity projects,
equipment up gradation/modernization schemes etc. Indian Railways ranks among the world‘s
largest and busiest rail networks under single management. India has the second largest road
network in the world. The initiatives by the Government of India to encourage PPP in power
sector has led to a steady rise in the share of private companies in power generation, i.e. about
14.59% of the installed capacity. Private power generation capacity is projected to increase to
18-20% by March 2012. The value of exports is expected to cross Rs. 1,000 billion by fiscal year
2008-09. This has resulted in more number of approved SEZs in the country.
In the backdrop of this encouraging scenario, we have come out with an industry analysis of
infrastructure in India covering power, industrial and transport sectors. The report comprises
eight chapters. It discusses general overview, growth drivers of the industry, issues and
Page 7 of 34
challenges, regulatory environment, major players, investment opportunities, critical success
factors and future outlook.
India has fast emerged as a land of opportunities in Infrastructure sector. The potential is
enormous as many sectors are opening up for participation and private investment. In the last few
years a number of Road Projects have been taken up under ambitious National Highway
Development Program costing about US$ 71 billion, in which large number of foreign
construction companies are participating. The telecom sector has moved forward at a brisk pace
and power reforms have gained momentum while the disinvestments process has got underway
in the Telecom and Oil and Gas sector.
Page 8 of 34
Classification of Indian Infrastructure
The country‘s core sector, comprising six key infrastructure industries, accelerated by 5.1 per
cent year-on-year in April 2010, compared with 3.7 per cent in April 2009, according to the data
released by the Union Ministry of Commerce and Industry. The growth was primarily led by an
increase in the production of cement, which stood at 18.87 million tons (MT), compared to 17.36
MT during April 2009.
Electricity production grew by 6 per cent in April 2010, as against 6.7 per cent in the same
month of the previous fiscal. Finished steel production registered a growth of 4.7 per cent during
the month, against a decline of 1.3 per cent in the corresponding period of 2009. Among other
industries, production of crude petroleum rose by 5.2 per cent, as against minus 3.1 per cent,
while production of petro-products registered an increase of 5.3 per cent, as compared to a
contraction of 4.5 per cent during April 2009.
Infrastructure investment in India is set to grow dramatically. As per Union Minister for Finance,
Mr. Pranab Mukherjee, India would require to develop a rupee-denominated long-term bond
market for funding the infrastructure sector that requires an investment of around US$ 459 to
US$ 500 billion by 2012.
Further, investment in the infrastructure sector is expected to be around US$ 425.2 billion during
the Eleventh Five Year Plan (2007-12), as against US$ 191.3 billion during the Tenth Plan.
Meanwhile, private investment into the sector is also projected to increase to US$ 157.3 billion
in the Eleventh Plan, as compared to US$ 47.84 billion in the Tenth Plan. This investment is
Page 9 of 34
likely to be fulfilled through public-private-partnership (PPP) projects that are based on long-
term concessions. Clearance has been given to nine new investment proposals of around US$
1.05 billion by the State Level Single Window Clearance Authority. Out of these nine proposals,
five were from the cement sector, two for setting up aluminum conductor units, and one each for
developing a petroleum coke plant and a maize processing unit.
Meanwhile, a committee on infrastructure under Prime Minister Dr. Manmohan Singh will
conduct quarterly review of development of power, road, ports, civil aviation and railways
sectors, announced the Planning Commission of India recently. Further, the cabinet committee
on infrastructure (CCI) will handle specific infrastructure cases that may require necessary policy
correction or solving issues affecting projects.
Notably, truck sales, a key indicator of goods movement, registered a growth of 74 per cent
during May 2010, as per the data released by the Indian Foundation for Transport Research and
Training (IFTRT). The increase in the demand for cargo transportation from the agricultural and
manufacturing sectors was one of the contributing factors in the increase in the truck sales.
In order to develop eco-friendly infrastructure for new cities in the Delhi-Mumbai Industrial
Corridor (DMIC), Japan-based consultants such as Nikken Sekkei, Mitsubishi and IBM Japan
would work along with DMIDC and three state governments. The project, expected to be
completed by 2018, as per Mr. Anand Sharma, Union Minister for Commerce and Industry is
―by far the world‘s biggest infrastructure project.‖
Page 10 of 34
Ports
The major ports in India handled 45.8 million tons cargo in February 2010, as compared to 45.2
million tons in February 2009. The cargo growth during April-February 2010 registered an
increase of 5.5 per cent as compared to the corresponding period in the 2009 fiscal, as per data
released by the Indian Ports Association (IPA).
The annual combined capacity of the major and non-major ports in the country will be 1.5 billion
tons by 2012, stated by Minister of Shipping, Mr. G K Vasan, while speaking at the Logistics
Outsourcing Summit organized by the Confederation of Indian Industry (CII).
The Union Cabinet has given the approval to the Shipping Ministry for declaring Andaman and
Nicobar ports as major port, stated Union Minister of Shipping, Mr. G K Vasan.
The Cabinet Committee on Infrastructure (CCI) has approved a proposal to develop the fourth
container terminal at the Jawaharlal Nehru Port (JNPT), the country's busiest port, at an
estimated cost of US$ 1.44 billion. The government also cleared a proposal to build standalone
container handling facility at Mumbai port at a cost of US$ 129.6 million. The project would be
implemented within two years from the date of the award of the project.
Airports
The domestic airlines flew about 4.78 million passengers in May 2010, an increase of almost 22
per cent over the number carried in the same period in the previous year.
Page 11 of 34
The Union Minister of State for Civil Aviation, Mr. Praful Patel, stated that the country will
become the top-five civil aviation markets in the world in the next five years. India is the ninth
largest civil aviation market in the world at present. The Airports Authority of India (AAI), the
agency responsible for civil aviation infrastructure, is likely to spend over US$ 1.01 billion on
the modernization of non-metro airports in the current year. Aircraft manufacturing companies,
Boeing and Airbus, remain upbeat over India's aviation growth potential. Airbus has forecast that
India will need 1,032 new aircraft worth US$ 138 billion by 2028, while Boeing has forecast that
the country will require 1,000 aircraft worth US$ 100 billion over the next two decades.
Mumbai Airport posted its highest ever monthly passenger traffic in its history in December
2009. According to Mumbai International Airport (MIAL), the Chhatrapati Shivaji International
Airport (CSIA) saw a record 2.53 million passengers in December 2009. This number is the
highest-ever passenger volume handled by the airport in its history, with the previous high
standing at 2.38 million passengers in January 2008. The government has mandated MIAL with
the task of upgrading and modernizing CSIA, which is a joint venture between the Airports
Authority of India and the GVK-SA consortium. The state-of-the-art integrated terminal, called
T3, of Indira Gandhi International Airport (IGIA) in New Delhi is the world‘s third-largest, after
Dubai in the United Arab Emirates and Beijing in China, in terms of size. Once T3 starts
operations in July 2010, IGIA will become the world‘s fifth-largest in terms of capacity. T3
increased the capacity of IGIA to 60 million passengers annually, from 23 million after it starts
commercial operation in July 2010.
The new Terminal 3 is a two-tier building, with the bottom floor being the arrivals area, and the
top being a departures area. This terminal has 168 check-in counters, 78 aerobridges, 30 parking
Page 12 of 34
bays, 72 immigration counters, 15 X-ray screening areas, for less waiting times, duty-free shops,
and other features. Over 90% of passengers will use this terminal when completed. This new
terminal has been completed in time for the 2010 Commonwealth Games, which are to be held in
Delhi, and will be connected to Delhi by an eight-lane motorway (National Highway 8), and
the Delhi Mass Rapid Transit System. Terminal 3 will cater to 34 million passengers a year. Its
official inauguration was on July 3, 2010.
Railroads
During the first month of the 2010-11 fiscal, the Railways reported an increase of 9.69 per cent
in its total earnings at US$ 1.62 billion, as compared to US$ 1.5 billion in the same month last
fiscal. The Railways garnered US$ 459 million in total passenger earnings in April 2010,
compared to US$ 411.6 million in April 2009. According to the Department of Industrial Policy
and Promotion (DIPP), the foreign direct investment (FDI) inflow into railways related
components has been US$ 109.56 million from April 2000 to March 2010.
The Delhi Metro is a rapid transit system serving Delhi, Gurgaon and Noida in the National
Capital Region of India. The network consists of five lines with a total length of
125.67 kilometers. The metro has 107 stations of which 17 are underground. It has a combination
of elevated, at-grade and underground lines and uses both broad gauge and standard
gauge rolling stock. Delhi Metro is being built and operated by the Delhi Metro Rail Corporation
Limited (DMRC). As of April 2010, DMRC operates more than 100 trains daily between 6:00 —
23:00 with a frequency of 3 to 4.5 minutes. The trains have four to six coaches and the power
output is supplied by 25-kilo volt, 50 Hz AC through overhead catenary. The metro has an
Page 13 of 34
average daily ridership of over a million commuters, and has carried over a billion commuters in
seven years since its inception.
Roads
An in-principal approval for converting 10,000 km of state roads to national highways has been
given by the Empowered Group of Ministers (EGoM). It is estimated that around US$ 3.3 billion
would be required over the next five years to undertake this project. Further, the Cabinet
Committee on Infrastructure (CCI) has approved four highway projects of about US$ 543.8
million on June 10, 2010. These projects would cover states such as Gujarat, West Bengal, Bihar,
Uttar Pradesh and Madhya Pradesh. Anil Dhirubhai Ambani Group (ADAG)‘s flagship company
Reliance Infrastructure Ltd (R-Infra) won a US$ 197.3 million project from the National
Highways Authority of India (NHAI). It is the tenth road project it won from the NHAI. Earlier,
R-Infra won a US$ 218.3 million road project from the Gujarat government, within a week after
winning the US$ 380 million Pune-Satara Road project from the National Highway Authority of
India (NHAI). The project is to execute a 71 kilometer four-six lane corridor connecting the ports
of Mundra and Kandla in Gujarat.
Recently, the elevated expressway between Silk Board junction and Electronic City junction,
built for US$ 165.5 million, was opened to public use. A consortium comprising Soma
Enterprise Ltd, Nagarjuna Construction Company and Maytas Infra Ltd constructed the 9.985
km long elevated road project. The project, executed through a special purpose vehicle,
Bangalore Elevated Toll way Ltd, was built on a build operate transfer basis for the NHAI.
Page 14 of 34
Investments
The infrastructure sector seems to have emerged as a favorite for the private equity (PE) in 2010.
According to Venture Intelligence data, so far in 2010, there have been 19 deals in this sector at
an approximate investment of US$ 1.1 billion, as compared to 14 deals with an investment of
US$ 257.5 million during the same period last year. JSW Energy (Bengal) Limited, a special
purpose vehicle (SPV) for the Bengal power and coal project, plans to invest around US$ 423.6
million in coal mine development. SembCorp Utilities, a Singapore-based company, has bought
49 per cent stake in Thermal Powertech Corporation India Ltd, a SPV and subsidiary of Gayatri
Projects Ltd, for US$ 235.1 million. An investment of around US$ 425 million has been made by
a consortium of investors led by Morgan Stanley Infrastructure Partners along with Goldman
Sachs Investment Management, General Atlantic LLC (GA), ever stone Capital, Norwest
Venture Partners and others in Asian Genco Pte (AGPL), an infrastructure company.
Larsen & Toubro (L&T), the country‘s largest engineering company, will invest around US$
5.46 billion to build its thermal power business in the next five years. L&T Power, the wholly-
owned subsidiary of L&T, will have a generation capacity of 5,500 MW, including hydro power,
by 2015. Larsen and Toubro Ltd also formed a joint venture with Malaysia-based Sapura Crest
Petroleum to install pipelines and construct offshore rigs and platforms in India, the Middle East
and South East Asia. Tata Power has lined up investments of US$ 5.19 billion for its upcoming
plants in Mundra, Maithon and Jojobera over the next three years. Tata Power and Reliance
Power are coming up with UMPPs with a combined generation capacity of close to 16,000 MW.
Jindal Steel & Power, which has a production capacity of 1,000 MW, plans to add another 4,380
MW thermal power and 6,100 MW hydro power capacity in the next five years.
Page 15 of 34
Government Initiatives
Page 16 of 34
The infrastructure finance companies (IFC) are being included in the category of non-banking
finance company (NBFC) by the Reserve Bank of India (RBI). The IFCs would require a capital
adequacy ratio of 15 per cent and the similar criteria of NBFCs would be applied to IFCs as well.
Further, RBI stated that at least 75 per cent of the assets of these institutions should be used in
infrastructure and their net owned funds should be US$ 64.6 million or more. While presenting
the Union Budget this year, the Finance Minister has announced the allocation of US$ 37.7
billion, around 46 per cent of the total plan outlay of US$ 81 billion for 2010-11 to infrastructure
sectors. In the last fiscal, this proportion was about 30 per cent. The Government of India has
envisaged capacity addition of 100,000 MW by 2012 to meet its mission of power to all.
Recently, a ministerial group discussing large power plants with a capacity to generate 4,000
MW of power has approved, in principle, a proviso requiring such plants that will be awarded in
the future to use local power generation equipment. The move is expected to provide a fillip to
domestic manufacturing. The decision on so-called ultra-mega power plants, or UMPPs, will
also benefit domestic power generation equipment manufacturers such as state-owned Bharat
Heavy Electricals Ltd (Bhel) and Larsen and Toubro Ltd (L&T), which has a joint venture with
Mitsubishi Heavy Industries Ltd (MHI) of Japan. At least three joint ventures, between Toshiba
Corp. of Japan and JSW Group; Ansaldo Caldaie SpA of Italy and GB Engineering Enterprises
Pvt. Ltd; and Alstom SA of France and Bharat Forge Ltd are looking to start manufacturing
power equipment in India.
Further, the government is also implementing the National Solar Mission, aimed at setting up
20,000 MW of solar power capacity by 2020. The Asian Development Bank (ADB) has
approved a financial assistance for US$ 200 million under the Assam Power Sector
Enhancement Investment Program. The project has some innovative features like franchisee-
Page 17 of 34
based distribution, off-grid electrification with renewable energy, reduction in CHG emissions
through efficiency gains. The road transport and highways ministry has proposed priority sector
status for road development, allowing private highway developers more funds from banks. Major
infrastructure development requires a substantial influx of investment capital. The policies of the
Indian Government seek to encourage investments in domestic infrastructure from both local and
foreign private capital. The country is already a hot destination for foreign investors. As per the
World Investment Report of the UNCTAD, India was rated the second most attractive location
(after China) for global FDI in 2007. Currently, India has FDI of about US$21 billion per year,
well below the targeted US$30 billion. In order to increase FDI inflows, particularly with a view
to catalyzing investment and enhancing infrastructure, the Indian Government has introduced
significant policy reforms. For example, it now permits 100% FDI under the automatic route for
a broad range of sectors only certain post investment intimation is required. For FDI in a few
sectors, a prior approval is required, which takes round 6-8 weeks. As part of policy reforms, the
Indian Government is constantly simplifying the approval route process, including setting up
several agencies to expedite FDI approval. Further liberalization is expected as the Government
continues to emphasize infrastructure investment. In August 2008, a press report stated that
Morgan Stanley was looking to invest up to a quarter of its US$4 billion global infrastructure
fund in emerging markets, notably India and China – and that in India, Morgan Stanley would
face competition from Australia‘s Macquarie Group, JP Morgan, Goldman Sachs and Deutsche
Bank, all looking to channel foreign investors‘ money into Indian infrastructure. While some of
this planned investment may be reduced or delayed given the current environment in the credit
markets, India is still likely to garner substantial FDI, particularly if its economy is able to
maintain a fairly strong rate of growth in the face of a global recession. From an exchange
Page 18 of 34
control perspective, India is moving towards full current account convertibility. Most revenue
transactions are freely permitted, except certain transactions like royalty, consultancy fees, etc.,
which are subject to certain limits. Capital account transactions need prior approval, except
where specifically permitted. In order to promote the construction sector, the Indian Government
has relaxed some of the exchange control restrictions and is now allowing foreign nationals/
citizens to acquire immovable property in India, subject to certain conditions and procedures.
Hurdles to investment remain. Although India has a well-developed legal system, the current
legal and regulatory environment sometimes acts as an obstacle to the necessary injections of
foreign private capital into India‘s infrastructure. Major infrastructure projects are governed by
the concession agreements signed between public authorities and private entities. Tariff
determination and the setting of performance standards vary somewhat by sector. In the roads
and highways sector, the ministry generally sets tolls – while in major ports projects, and many
of those in electricity generation, an independent regulator will decide relevant tariffs. In the
airport sector, a new independent regulator is planned for 2009 and is likely to play a major role
in determining tariffs in concession agreements for the segment. In some instances, ministry or
regulator control over potential proceeds can act as a disincentive to the private infrastructure
developer. As is the case in many countries, there is no single regulator which formulates the
policy for all infrastructure projects. There is also no standardization in the concession
agreements across the different infrastructure sectors. As a result, the development of certain
sectors in India may be hampered due to lack of adequate and co-ordinated planning. Projects
which are approved may face difficulties if related projects are substantially delayed. One
example is Bangalore‘s new international airport, one of the largest PPP projects to date. The
project is facing growing pains related to insufficient road and rail connections to the new
Page 19 of 34
facility, in part due to delays of expected high-speed rail and highway projects under the auspices
of other government bodies.
Opportunities Analysis of Indian Infrastructure
Page 20 of 34
Roads & Highways

India‘s roads are already congested, and getting more so. Annual growth is projected at over
12% for passenger traffic and over 15% for cargo traffic. The Indian Government estimates
around US$90 billion plus investment is required over FY07-FY12 to improve the country‘s
road infrastructure. Plans announced by the Government to increase investments in road
infrastructure would increase funds from around US$15 billion per year to over US$23 billion in
2011-12 (see Figure 2). The quantum of funds invested as part of these programs will
significantly exceed that invested in recent history. Such programs would be funded via a mix of
public and private initiatives.
The Indian Government, via the National Highway Development Program (NHDP), is planning
more than 200 projects in NHDP Phase III and V to be bid out, representing around 13,000km of
roads. The average project size is expected to US$150 million-US$200 million. Larger projects
are likely to reach the US$700 million- US$800 million range. About 53 projects with aggregate
length of 3000km and an estimated cost of around US$8 billion are already at the pre-
qualification stage. The procurement process favors players with good experience and sound
financial strength. The opportunities do not stop there. More than 10 states are also actively
planning the development of their highways. While the average size of these projects is smaller
than the NHDP projects, most will still be substantial, in the US$100 million- US$125 million
range. All told, more than 4,500km of state highways are likely to be awarded by the end of
2010.The Indian Government has also recognized existing infrastructure gaps and capacity
constraints in the rail system, and as a consequence plans large scale investment over the five
years from FY07-FY12. Projected investments total US$65 billion, of which 40% is expected to
be contributed by the private sector. One major PPP program is already in its initial phases. The
Page 21 of 34
Dedicated Freight Corridor project is designed to alleviate congestion on the rail routes between
Delhi and Mumbai and Delhi and Kolkata by building long-distance, cargo-only rail lines, at an
estimated cost of US$6 billion-7 billion. Other proposed initiatives include the development of
manufacturing plants for rolling stock with long-term committed procurement for several years,
and the setting up of logistics parks. City metro systems are also in the pipeline. The first
corridor of the Mumbai Metro Project has already been awarded to Reliance Infrastructure and
the Government has asked the final shortlisted companies to submit detailed financial bids for
the second phase of the Mumbai Metro. Indian Railways is also looking for private partners to
help modernize railway stations to world-class levels, and for projects focused on increasing
connectivity with ports.
Ports and airports

Increasing connectivity with inland transport networks is just one of many challenges currently
facing India‘s ports, which have seen massive swells in the amount of goods transported. Traffic
is estimated to reach 877 million tons by 2011-12, and containerized cargo is expected to grow at
15.5% (CAGR) over the next 7 years. India‘s existing ports infrastructure is not sufficient to
handle the increased loads – cargo unloading at many ports is currently inadequate, even where
ports have already been modernized. An estimated investment of around US$22 billion is
targeted for port projects in the five year period from FY07- FY12. The National Maritime
Development Program includes 276 projects, with a required investment of about US$15 billion
over the next ten years, with private investment targeted at around US$8 billion. In addition to
improving road and rail connections, projects related to port development (construction of jetties,
berths, container terminals, deepening of channels to improve draft, etc.), will provide major
Page 22 of 34
opportunities for E&C companies. Recent deregulation of the sector now permits 100% FDI, and
an independent tariff regulatory authority has been set up to facilitate projects at major ports.
Air traffic has increased rapidly in recent years, although this slowed in 2007. While a number of
Indian airlines have faced challenging market conditions in 2008, and the rate of growth is likely
to be significantly less than initially projected, Indians are still flying in much greater numbers.
Estimates made in 2007 by the Indian Government‘s Committee on Infrastructure suggest that
passenger traffic will grow at a CAGR of over 15% in the next 5 years. Indian manufacturers are
also looking to the skies – the same source anticipates that cargo traffic will grow at over 20%
p.a. over the next five years. Even if these estimates prove somewhat optimistic, the growth
already achieved has put tremendous pressure on airport infrastructure. The Indian Government
has projected that an investment of around US$8 billion in the five year period from FY07-12
will be needed to help cope with additional demand, and private sector participation is expected
to play a key role. The private sector has already stepped up to the challenge of airport
infrastructure development in several cases, with private participation in recent years at Delhi,
Mumbai, Hyderabad, Cochin and Bangalore supplementing the efforts of the Airports Authority
of India. The Government has proposed the establishment of an Airport Economic Regulatory
Authority (AERA) to promote efficiency, competitive pricing and a customer-focused service.
State governments are also getting involved and looking to facilitate the development of new
airports. The total investment on new airports has been proposed at about US$10 billion by 2012.
Greenfield airport projects are planned in resort destinations and emerging metros such as Goa,
Pune, Navi Mumbai, Greater Noida and Kannur. Further, 35 non-metro airports are proposed for
Page 23 of 34
development. Prequalification of bidders for development of Amritsar and Udaipur airport has
already been completed, and bids for 10 non-metro airports are scheduled to be invited shortly.
As the density of airports increases in various regions, increased competition is likely to bring
new issues into focus, such as corporate performance management. Airports will look to
diversify their revenue sources through the development of city-side infrastructure. Airlines will
also be looking for new technology solutions to maximize revenues and reduce costs. MRO
(Maintenance, Repair & Overhaul) facilities could therefore also present new business
opportunities. The need for improved aviation infrastructure extends beyond the construction of
new airports – existing metro airports also require significant modernization and upgrading. EPC
contractors are expected to be sought for Chennai and Kolkata airports in the immediate future.
Power
Increased manufacturing activities and a growing population are also causing a surge in power
usage. India has the fifth largest electricity grid in the world with 135 GW capacity, and the
world‘s third largest transmission and distribution (T&D) network. Large investments are needed
to meet growing demand and provide universal access. The policy and regulatory framework
Is pro-investment – shifting away from ‗negotiated and guaranteed‘ to ‗open and market
competition‘. Given the increased competition, diversity, and number of opportunities, project
and collaboration risk must be more carefully assessed and managed. An investment of US$167
billion is projected for electricity projects in the five year period from FY07-FY12. The massive
number and scope of potential projects has attracted a number of new investors, lenders and
operators. All new awards are through open, competitive bidding. A rush is on to develop new
Page 24 of 34
assets, harness natural resources, and attract global finance – but an industry focus and strategy is
necessary to properly tap into this opportunity. E&C companies may want to consider
Involvement in the construction of power stations and T&D networks, particularly if sustainable
building and generation technologies can be leveraged. The Indian Government is also looking to
encourage the generation of wind and solar power by providing generation-based incentives to
those companies who do not claim accelerated depreciation, so E&C companies with experience
in building these types of alternative energy projects may find excellent opportunities.
Public private partnerships

Funding India‘s wide-ranging, US$500 billion program of infrastructure expansion over a five-
year period is likely to be beyond the means of total government funding, so policies have been
designed to facilitate private investment to the maximum level possible. If the Indian
Government‘s targeted level of private sector involvement and investment are met
(approximately 30%), the quantum of funding required would be around US$150 billion. The
investment achieved over the past decade by comparison. Achieving this level of investment is
ambitious. Several frameworks and plans are already in place, however, that may facilitate
reaching these goals. The PPP/PFI market in India is still at a relatively early stage. However,
over the past decade or so, there has been an increasing trend at the central as well as state
government level to use PPPs for meeting critical infrastructure gaps. The results have been quite
encouraging. Establishing a PPP is now considered to be the default option for major
infrastructure projects in sectors such as roads, railways, airports, ports and other transport
segments. First preference will be given to the PPP model, and only in cases where projects are
expected to fail to attract private sector interest will more traditional models be considered. Most
Page 25 of 34
infrastructure sectors have an overall long-term plan and program that provides guidance on the
projects that are likely to come up for development. Key policy frameworks for procurement of
projects through PPPs have also been drafted. For example, the NHDP discussed earlier in this
paper details a long-term plan for the roads and highways segment, with seven defined phases
And largely clearly identified projects (along with project costs) and an agreed timeframe. The
roads and highways segment also has a generally successful PPP model concession framework.
The NHDP is mandated to a dedicated agency that also has clearly earmarked source of funding
coming in to support the program. Almost all the other sectors have similar plans. Over the last
3-4 years, there has been a push towards expanding the scope of PPPs for the provision of urban
infrastructure through establishment of another government program for urban
Renewal across the country. This is likely to further increase the scope, scale and number of
PPPs in the country.
Not surprisingly, international interest in Indian PPPs has soared in 2008, with over 50
international players showing interest in a variety of types of projects in the first three quarters of
the year. Local players are also increasing their interest. Until recently, only a very limited
number of large domestic players were fully conversant with PPP models and had the capability
to deliver on them. However, local developers and contractors are catching up fast and domestic
capacity has increased substantially in recent months. E&C companies looking to participate
In this burgeoning segment do face certain hurdles. The typical PPP project design and
preparation process is still largely technically-oriented, with limited appreciation of the overall
financial and commercial risk issues involved. Often information distortions in the market
Page 26 of 34
Have led to large variations in the bids/ offers received during the procurement process. Further,
the procurement process is often highly prescriptive, rather than participative. The emphasis is
on conforming to public sector requirements, which may not offer value for money and does not
encourage innovative solutions, rather than evolving the project configuration to be delivered
over the long-term in a partnership approach. And while the public sector is dictating the terms,
it is quite often not willing to shoulder concomitant risk. The current concession structure is
highly asset oriented, rather than focusing on service delivery. Private sector participants are
Often required to assume considerable risk, including demand risk and the apportionment of risk
is in some cases quite inefficient. Financing for PPP/PFI projects can also be a key constraint, as
long-term financing and instruments have been in scarce supply. PPP projects have so far been
largely financed domestically using plain vanilla debt with relatively low gearing. Commercial
Banks are the major source of debt with generally short tenor (being about 50% of concession
period). At the current time, it is difficult to predict how the financing situation will evolve over
the short-term. Certainly, access to credit has become far more restrictive on a global basis,
however if India‘s growth continues to outperform most other economies, it could emerge as a
Preferred destination for investment. India has become an attractive PPP market and its
attractiveness is likely increase in the future. Contractors able to negotiate and partner with the
Relevant ministries should find excellent opportunities, particularly companies with a longer-
term view.
Page 27 of 34
Challenges to enter the Indian market

Foreign firms do not get their own infrastructure to execute projects, such as skilled manpower,
Plants & equipment‘s and construction materials etc. They usually try to employ locally
available
Resources in order to cut costs.
Without doubt then, there is huge opportunity in the Indian infrastructure space in the short- and
medium-terms at least. The policies of the Indian Government, which have been evolving
very rapidly in recent years, continue to encourage the private sector in taking on a larger and
more diverse role – from being an infrastructure builder (under a publicly financed arrangement)
to an infrastructure developer (under PPP structures which include private finance).
These developments have led to a large number of infrastructure projects open up
As opportunities for the private sector. Considering the liberal FDI guidelines, these lucrative
projects present both an opportunity and a threat to local players. In many cases, foreign players
are believed to have greater technological expertise, deeper pockets and more extensive
experience compared to domestic companies. These advantages could mean overseas companies
winning work at the expense of local players, or partnering with them. Domestic E&C
companies may therefore look at foreign entrants in the market as tough competitors – or as
Strong potential partners. If most of the forecasted projects go ahead as planned, there should be
more than enough work for everyone. Wharton Business School‘s 2007 analysis of India‘s
construction boom pointed out that the proposed US$50 billion infrastructure spend per year in
India is nearly two and half times the current turnover of the entire existing domestic
construction industry (US$15 billion and growing fast), and that many of the major E&C
companies have massive order backlogs. Wharton also flagged talent shortages as an issue in
Page 28 of 34
Key skilled trades such as fitting, welding, masonry and plumbing – so drawing on the talent
pool of foreign partners may help in supplementing and training local tradesmen. India is also
facing shortages of construction equipment and machinery. Domestic production of equipment
and
Machinery is ramping up fast, but in the short term, a foreign partner may be able to help fill in
any gaps. There are many factors that influence the role of the local player‘s vis-à-vis foreign
players – for example, the criteria used for the selection of developers is an important influencer
On what role the foreign players will take. Risk-sharing on a PPP project also needs to be
carefully considered. The revenues of most infrastructure projects in India will be denominated
in the local currency. Foreign players will need to consider the currency and tax issues already
mentioned in some detail, particularly on a PPP project where significant private investment is
also sought. International EPC contractors, including Toyo Engineering, Jacobs H&G, Uhde,
Tecnimont and Aker Kvaerner, are already leading players in India. At the same time, many
Indian companies e.g. Larsen & Toubro (L&T), Gammon, Bharat Heavy Electrical Limited
(‗BHEL‘), Engineers India Ltd and Thermax have either scaled up their skill sets or extended
their operations to overseas projects. India has a very well established infrastructure developer
market. Local firms have evolved in recent times into fully-fledged national players (and in some
Cases international players). In certain sectors, such as highways, power and water, the local
firms also have significantly progressed on the technological front. Some of the India-based
companies such as L&T, Punj Lloyd, Reliance, GMR, Suzlon, Tata Power, etc. are very active in
The international markets and thus, can no more be deemed ‗local‘ E&C companies. Indeed,
they are global organizations based out of India. These and other large firms clearly look at
Page 29 of 34
foreign players as both partners and competitors. However, smaller and medium-sized
infrastructure
Construction companies and developers (such as KMC, Nagarjuna, IVRCL, Gammon, etc.) are
often happy to partner with foreign players without necessarily considering them as competitors.
The recent guidelines issued by the Indian Government for the selection of PPP developers have
also led to a slightly distorted behavior in the local marketplace. The guidelines favor
Larger players, even when the project investments and execution can be easily carried out by
mid-sized companies. This has led to situations where many of the small/medium-sized local
players
Are looking at partnering with the foreign players primarily for the purpose of getting qualified
and winning the job, rather than to actually bring in investment or expertise. It is expected that
such behavior will soon change as the guidelines become more reflective of market dynamics
and mid-sized Indian companies mature. Foreign players looking to enter into the Indian
marketplace and team with local players need to evaluate carefully the cost competitiveness of
their prospective participation. India has witnessed huge interest from a number of foreign
infrastructure companies in the past, but not many have really been able to offer a cost-
competitive proposal. Since India has evolved its own model of cost competitive delivery in
many sectors (for example, in telecoms), local players have an incentive to work with foreign
companies only if the partnering offers a competitive edge over other bidders. There have been
few such success stories so far where the foreign player has offered a particularly cost-
competitive product or service. In instances where we have seen the successful entry of foreign
Page 30 of 34
players (such as in the port sector), foreign companies have often been able to bring technology
or management advantages, or expanded reach into international markets, to supplement the
capabilities of local partners.
Page 31 of 34
Building a sustainable future in India

Whilst the need for greater infrastructure investment is clear, equally important is the need to
sustainably manage such investments. The Indian Government‘s success in infrastructure
provision will be measured not by the quant um of funds invested, but on how infrastructure
contributes to the achievement of India‘s economic, social and environmental objectives.
Importantly, infrastructure investment should be considered as a means to an end, not an end in
itself. Challenges in infrastructure provision are not unique to India. Uncertainty, scarcity
of available funds for investment, and competing priorities present challenges to all governments
in infrastructure planning and delivery. Sustainability requires that future generations are not
compromised by the investment decisions of current generations. Sustainably managing
infrastructure through the appropriate pricing, funding and prioritization frameworks is important
to ensure the benefits that accrue from the significant investment that India is currently making
in key social and economic infrastructure are maximized. Global climate change creates further
challenges. New infrastructure must not only support social and economic goals, it must also do
so within acceptable environmental parameters. Given that India‘s growth rate is likely to
continue at high levels, it is important that considerations of issues such as fuel mix, encouraging
more fuel efficient modes of transport such as rail, and the possible use of CCS technology,
come fully into discussion and are implemented whenever possible. In our view, it is imperative
that debate on the issue of sustainability in infrastructure provision is heightened and that the
challenge that it presents is effectively met. Government and infrastructure agencies will also
need to retain sufficient focus on issues of feasibility and prioritization when the primary focus
shifts to delivery. Those that do so have a unique opportunity to make a major difference in a
growing economy while enhancing their own bottom line.

Page 32 of 34
Concluding thoughts
Although it may not always be easy to navigate the plethora of views, opinions and perceptions
expressed by various local stakeholders, a vast opportunity exists for foreign contracting
companies looking to invest in Indian infrastructure. Already, a number of contractors from
Europe, Australia, China, Malaysia and Korea have made their presence felt in India. Further,
many E&C companies, particularly from Japan, Spain, France and the UK are also now
aggressively looking out for opportunities to enter India for business. Overall, the opportunities
to develop a significant business in India are extremely promising for E&C companies, if they
have carefully selected strong local partners, structured contracts sensibly to maximize tax
benefits where appropriate, and taken a long-term, sustainable perspective. Foreign companies
who do not acknowledge the opportunity in good time may miss out on a critical opportunity
to establish a long-term presence in one of the world‘s largest growth markets.
Page 33 of 34
Bibliography
http://www.books.google.co.in
http://www.wikipedia.org
http://www.yahoo.groups.com
Page 34 of 34

Indusrty Research A Report Submitted For External Assessment On Project Topic: Opportunity Analysis in Infrastructure Industry in India

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Indusrty Research A Report Submitted For External Assessment On Project Topic: Opportunity Analysis in Infrastructure Industry in India

Uploaded by

Copyright:

Available Formats

Industry Research - Infrastructure Industry

A Report Submitted for External Assessment on

Project Topic: Opportunity analysis in Infrastructure Industry in

Under The Guidance Of

Mr. Sarjit Singh Yadav, GM Rathi Bars LTD

STUDENT NAME: ISHMEET SINGH KOHLI

BATCH: UGP FW 2007-2010/ PGP FW 2008-2010

We thank him for his timely guidance.

S.No. Contents Page No.

5. Classification of Indian Infrastructure 9

7. Opportunity Analysis of Indian Infrastructure 21

8. Challenges to enter the Indian Market 28

9. Building a sustainable future in India 32

10. Concluding thoughts 33

taken by the government for the development of this sector further.

growth, since Independence.

The Rural/Urban Scenario

still lives in its villages‖.

with the danger of turning the clock backwards.

The Chinese tales

economy due to problems connected to infrastructure. Growth potential is dependent on the

The cost factor

the construction/up gradation of berths, deepening of channels, rail/road connectivity projects,

challenges, regulatory environment, major players, investment opportunities, critical success

factors and future outlook.

in the Telecom and Oil and Gas sector.

Classification of Indian Infrastructure

MT during April 2009.

while production of petro-products registered an increase of 5.3 per cent, as compared to a

contraction of 4.5 per cent during April 2009.

US$ 500 billion by 2012.

developing a petroleum coke plant and a maize processing unit.

correction or solving issues affecting projects.

―by far the world‘s biggest infrastructure project.‖

released by the Indian Ports Association (IPA).

Outsourcing Summit organized by the Confederation of Indian Industry (CII).

commercial operation in July 2010.

official inauguration was on July 3, 2010.

seven years since its inception.

of Mundra and Kandla in Gujarat.

an approximate investment of US$ 1.1 billion, as compared to 14 deals with an investment of

power equipment in India.

of other government bodies.

Opportunities Analysis of Indian Infrastructure

Roads & Highways

road infrastructure. Plans announced by the Government to increase investments in road

public and private initiatives.

connectivity with ports.

Ports and airports

Authority (AERA) to promote efficiency, competitive pricing and a customer-focused service.

Public private partnerships

infrastructure through establishment of another government program for urban

PPPs in the country.

Challenges to enter the Indian market

Resources in order to cut costs.

to an infrastructure developer (under PPP structures which include private finance).

These developments have led to a large number of infrastructure projects open up

facing shortages of construction equipment and machinery. Domestic production of equipment

or management advantages, or expanded reach into international markets, to supplement the

capabilities of local partners.

Building a sustainable future in India

sustainably manage such investments. The Indian Government‘s success in infrastructure

contributes to the achievement of India‘s economic, social and environmental objectives.