INTRODUCTION TO INFRASTRUCTURE

Dr. Sarbesh Mishra Finance Area.

Thoughts 1. 'Our infrastructure growth has been tardy and rumbling on for years. Like an elephant, it can stumble also. Unless we fix the inherent problems such as land acquisition and time consuming procedures, early execution of various projects will remain a challenge,' -CMD, ONGC 2. The link between infrastructure and economic development is not a once and for all affair. It is a continuous process; and progress in development has to be preceded, accompanied, and followed by progress in infrastructure, if we are to fulfill our declared objectives of generating a self-accelerating process of economic development. Dr. V. K. R. V. Rao, Economist

Meaning and Definition

The word infrastructure has been used in English since at least 1927, originally meaning "The installations that form the basis for any operation or system. Infrastructure is the basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an Economy to function. The term came to prominence in the United States in the 1980s following the publication of America in Ruins, which initiated a public-policy discussion of the nations "infrastructure crisis", purported to be caused by decades of inadequate investment and poor maintenance of public works

Types of Infrastructure
1. Hard Infrastructure - Hard" infrastructure refers to the large physical networks necessary for the functioning of a modern industrial nation. 2. Hard infrastructure is limited to capital assets that serve the function of conveyance or channeling of people, vehicles, fluids, energy, or information, and which take the form either of a network or of a critical node used by vehicles, or used for the transmission of electro-magnetic waves. 3. Broadly it can be classified into following categories, namely: (a) Transport Infrastructure (b) Energy Infrastructure (c) Water Management Infra. (d) Communication Infra. (e) Solid Waste Management (f) Earth Monitoring and Measurement Networks

Transport Infrastructure
Road and highway networks, including structures (bridges, tunnels, culverts, retaining walls), signage and markings, electrical systems (street lighting and traffic lights), edge treatments (curbs, sidewalks, landscaping), and specialized facilities such as road maintenance depots and rest areas Mass transit systems (Commuter rail systems, subways, tramways, trolleys and bus transportation) Railways, including structures, terminal facilities (rail yards, train stations), level crossings, signalling and communications systems

Contd.
Canals and navigable waterways maintenance (dredging, etc) Seaports and lighthouses Airports, including air navigational systems Bicycle paths and pedestrian walkways Ferries requiring continuous

Energy Infrastructure
Electrical power network, including generation plants, electrical grid, substations, and local distribution. Natural gas pipelines, storage and distribution terminals, as well as the local distribution network. Some definitions may include the gas wells, as well as the fleets of ships and trucks transporting liquefied gas. Petroleum pipelines, including associated storage and distribution terminals. Some definitions may include the oil wells, refineries, as well as the fleets of tanker ships and trucks.

Contd.
Specialized coal handling facilities for washing, storing, and transporting coal. Some definitions may include Coal mines. Steam or hot water production and distribution networks for district heating systems. Electric vehicle networks for charging electric vehicles. Coal mines, oil wells and natural gas wells may be classified as being part of the mining and industrial sector of the economy, not part of infrastructure.

Water Management Infrastructure

Drinking water supply, including the system of pipes, storage reservoirs, pumps, valves, filtration and treatment equipment and meters, including buildings and structures to house the equipment, used for the collection, treatment and distribution of drinking water. Sewage collection, and disposal of waste water Drainage systems (storm sewers, ditches, etc) Major irrigation systems (reservoirs, irrigation canals) Major flood control systems (dikes, levees, major pumping stations and floodgates)

Contd.
Large-scale snow removal, including fleets of salt spreaders, snow-plows, snow blowers, dedicated dump-trucks, sidewalk plows, the dispatching and routing systems for these fleets, as well as fixed assets such as snow dumps, snow chutes, snow melters. Coastal management, including structures such as seawalls, breakwaters, groynes, floodgates, as well as the use of soft engineering techniques such as beach nourishment, sand dune stabilization and the protection of mangrove forests and coastal wetlands.

Communications infrastructure
Postal service, including sorting facilities Telephone networks (land lines) including telephone exchange systems, Mobile phone networks Television and radio transmission stations, including the regulations and standards governing broadcasting Cable television physical networks including receiving stations and cable distribution networks (does not include content providers or "networks" when used in the sense of a specialized channel such as CNN or MTV)

Contd.
The Internet, including the internet backbone, core routers and server farms, local internet service providers as well as the protocols and other basic software required for the system to function (does not include specific websites, although may include some widely-used web-based services, such as social network services and web search engines) Communications satellites Undersea cables Major private, government or dedicated telecommunications networks, such as those used for internal communication and monitoring by major infrastructure companies, by governments, by the military or by emergency services, as well as national research and education network.

Solid Waste Management Municipal garbage and recyclables collection Solid waste landfills Solid waste incinerators and plasma gasification facilities Materials recovery facilities Hazardous waste disposal facilities

Earth Monitoring and Measurement Networks

Meteorological monitoring networks Tidal monitoring networks Stream Gauge or fluviometric monitoring networks Seismometer networks Earth observation satellites Geodetic benchmarks Global Positioning System Spatial Data Infrastructure

Soft Infrastructure
1. This refers to all the institutions which are required to maintain the economic, health, and cultural and social standards of a country, such as the financial system, the education system, the health care system, the system of government, and law enforcement, as well as emergency services. 2. The essence of soft infrastructure is the delivery of specialized services to people.

Soft Infrastructure Contd. 3. Soft infrastructure includes both physical assets such as highly specialized buildings and equipment, as well as non-physical assets such as the body of rules and regulations governing the various systems, the financing of these systems, as well as the systems and organizations by which highly skilled and specialized professionals are trained,

Contd.

advance in their careers by acquiring experience, and are disciplined if required by professional associations (professional training, accreditation and discipline).

Soft Infrastructure Contd. Examples of Soft Infrastructure: 1. Governance Infrastructure (Law Enforcement) 2. Economic Infrastructure (Banking and Financial System, SEZ policy, Agricultural, Fishery) 3. Social Infrastructure (Health Care System, Insurance, Educational & Research, Public Welfare) 4. Cultural, Sports and Re-creational Infrastructure (Parks, Sports, Museum, Libraries, Convention Centre, Hotels, Restaurants)

Impact on Economic Development

Development of public works assets can be seen as a barometer of a countries economic, political, and populace well being. Infrastructure development is critical for sustainable growth for countries such as India, Indonesia, China, and the Philippines to name a few. In India, it is often noted that poor infrastructurea lack of water and sanitation, shoddy roads, and unpredictable energy supplyconstrains foreign direct investment and overall economic potential.

Contd.
Deputy Chairman of Indias Planning Commission Montek Singh Ahluwalia expects infrastructure spending to rise to 9% of gross domestic product versus a current 5%; thus current infrastructure investment of $50 billion would need to double by the 2011-2012 time period. Large-scale projects require massive capital investment with long completion times, however, and many carry political, regulatory and financial risk. Investment in infrastructure is part of the capital accumulation required for economic development and may have an impact on socioeconomic measures of welfare.

Contd.
In developing nations, expansions in electric grids, roadways, and railways show marked growth in economic development. However, the relationship does not remain in advanced nations who witness more and more lower rates of return on such infrastructure investments. Infrastructure yields indirect benefits through the supply chain, land values, small business growth, consumer sales, and social benefits of community development and access to opportunity.

Used as Economic Stimulus

During the Great Depression of the 1930s, many governments undertook public works projects in order to create jobs and stimulate the economy. The economist John Maynard Keynes provided a theoretical justification for this policy in The General Theory of Employment, Interest and Money, published in 1936. The global financial crisis of 20082009, some again proposed investing in infrastructure as a means of stimulating the economy.

Investment Opportunities In Indian Infrastructure

Infrastructure

Transportation

Banking

Real Estate

 The Growth Rate of the Infrastructure Sector in India GDP has grown at the rate of 8.5% between 2006 and 2010. Indias spending on infrastructure is expected to go up from US $ 24 billion in 2005 to US $ 47 billion in 2009. The government is targeting an investment of US$ 20.38 billion over the next two years (2010-2011) in the infrastructure sector Government plans to invest $320 billion for the upgrades of ports, railroads, highways and airports over the next 15 years. Ports The government has identified 276 projects entailing an investment of US$ 12 billion. According to the Planning Commission, there is an investment opportunity of US$ 25 billion by 2011-12 in India's shipping and ports sectors The ports sector would provide a US$ 13.75 billion investment opportunity, shipping and inland waterways are likely to present a US$ 11.25 billion investment opportunity.

Indian Infrastructure
Airports The government plans to attract private players through the PPP mode for the development of over 300 airports and airstrips. It would invest US$ 9 billion to modernize existing airports by 2010. The Civil Aviation Ministry plans to develop 35 Greenfield airports across India by 2010 with an investment of US$ 35 billion for the proposed airports. Railroads The Indian Railways took up the most ambitious ever annual plan for fiscal 2008-09, entailing an enormous investment of US$ 7.91 billion, registering a 21 per cent increase over the previous year. The plan includes a total budgetary support of US$ 1.66 billion including US$ 163.33 million to be provided from the Central Road Fund.

Indian Infrastructure
Roads During 2007-08, US$ 1.86 billion had been provided for the national highways and for state roads. Of this amount, US$ 1.5 billion is for national highways and US$ 0.36 billion for state roads. An amount of US$ 0.04 billion has also been allocated during 2007-08 for the development of state roads. According to a consultation paper by the Planning Commission, investment in the roads sector during the Eleventh Plan is projected at US$ 93.11 billion. Electricity During the Eleventh Plan, the government aims to add power generation capacity of about 70,000 MW and provide electricity to all un-electrified hamlets and all rural households through the Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY). Telecom and IT The Eleventh Plan envisages reaching a telecom subscriber base of 600 million, with 200 million rural telephone connections and attaining a broadband coverage of 20 million and 40 million Internet connections.

These are the major government initiatives which are going to be implemented (some have already started).

Electricity Banking
Indian banking sector has

been growing at a tremendous pace. There are around 222 commercial banks in India (of which 133 RRBs). Indian banking sector is highly vibrant Out of the 222 there are many foreign banks which have set up facilities in India, some of these banks are Deustchebank, Royal Bank of Scotland, Citibank etc.

Government aims to add power generation capacity of about 70,000 MW and provide electricity to all unelectrified hamlets and all rural households through the Rajiv Gandhi Grameen Vidyutikaran Yojna. The estimated increase in capacity is 227GW by 2012 from existing 132GW.

Telecom & IT
The country is ranked third worldwide in terms of having the largest telecommunication network, after China and USA. One in every three people in India connect to people using this network. The Information technology is an ever growing industry with a 11% growth rate year on year.

Infrastructure

Government Initiatives
Government has been taking a lot of initiatives in terms of infrastructure. Government plans to invest $320 billion for the upgrades of ports, railroads, highways and airports over the next 15 years

Real Estate
The real estate market is estimated to grow to US $ 1400 billion The Indian real estate sector is highly vibrant with a lot of real estate opportunities. It is the right time to invest in the Indian real estate market as the real estate market is ever growing.

Utilities

Furnishings

Real Estate
Lease Terms Deposits / Customs

Facilities are very good in major cities of India. Cost of obtaining facilities is cheap. Quality is comparable with international standards It is recommended to go through a professional house for utility hook-ups as the Utilities process is very cumbersome and it more people dependent and not process dependent

International brands are available very easily Excellent domestic products are also available. Total cost of ownership is low The complete home furnishings are also available Furnishings for rent for short term assignees

Real Estate
Deposits / Customs
Deposit amounts vary by city. Best practice is to pay by cheque, obtain receipts and also inform the landlord early. Rent is paid by the 5th of the month.

Lease Terms
Easy to get in/out of lease. Standard lease terms across India with slight variations. Sublets are allowed

Construction is the second largest economic activity after agriculture In India, the investment in construction accounts for nearly 11 per cent of Indias Gross Domestic Product (GDP) and nearly 50 per cent of its Gross Fixed Capital Formation (GFCF). It accounts for nearly 65 per cent of the total investment in infrastructure and is expected to be the biggest beneficiary of the surge in infrastructure investment over the next five years. The investment in this segment over the financial year 2007 to 2012 is estimated at US$ 500 billion. Indian construction industry to be valued at US$105bn in 2008 and at US$250bn by 2012, registering an average growth of around 15% over between 2008-2012.

Contd.
The construction industry contributed nearly 8.5% to India's gross domestic product (GDP) in 2007 and expected to contribute 17% to GDP by 2012. The investment in construction accounts for nearly 65 percent of the total investment in infrastructure and is expected to be the biggest beneficiary of flow in infrastructure investment in coming 5-6 years. Construction sector will require an investment of Rs.14,000 billion in the next 5-6 years during 11th plan (2007 12) and even thereafter.