SECTOR ANALYSIS

Date April 2011

India: Infrastructure sector in India Our ref. AJ

Prepared by Trade Council India, New Delhi

Abstract:

The Planning Commission of India has estimated that investments

in the Infrastructure sector (comprising of Roads, Airports,
Railways, Ports, Electric Power, Telecommunications etc.) would
entail an outlay of almost US$ 320 billion over the eleventh five-
year plan period (2007-2012).

The Government has committed itself to build large infrastructure

projects through significant public expenditure with the help of
private partners. Cumulative investments in roads and highways,
ports, airports and railways are expected to be US$ 150 billion over
the next 5-6 years.

FDI up to 100% is allowed in most infrastructure sectors without

prior government approval. Investors are generally allowed to
repatriate up to 100% of profits from investments in India. So far,
foreign investors have been keenest to invest in highways and
ports.
Table of Contents
Introduction: Infrastructure Sector in India .................................................................... 3
Roads ..................................................................................................................................... 3
Market overview: ........................................................................................................ 3
Investments: ................................................................................................................ 3
Opportunities: ............................................................................................................. 4
Airports ................................................................................................................................. 4
Market overview: ........................................................................................................ 4
Investments: ................................................................................................................ 4
Opportunities: ............................................................................................................. 5
Railways................................................................................................................................. 5
Market Overview: ....................................................................................................... 5
Investments: ................................................................................................................ 6
Opportunities: ............................................................................................................. 6
Ports ...................................................................................................................................... 6
Market overview: ........................................................................................................ 6
Investments: ................................................................................................................ 6
Opportunities: ............................................................................................................. 7
Contact .................................................................................................................................. 8

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Introduction: Infrastructure Sector in India
The Planning Commission of India has estimated that investments in the
Infrastructure sector (comprising of Roads, Airports, Railways, Ports, Electric
Power, Telecommunications etc.) would entail an outlay of almost US$ 320 billion
over the eleventh five-year plan period (2007-2012).

The Government has committed itself to build large infrastructure projects

through significant public expenditure with the help of private partners.
Cumulative investments in roads and highways, ports, airports and railways are
expected to be US$ 150 billion over the next 5-6 years.

FDI up to 100% is allowed in most infrastructure sectors without prior

government approval. Investors are generally allowed to repatriate up to 100% of
profits from investments in India. So far, foreign investors have been keenest to
invest in highways and ports. Lately, with government’s clear cut plans,
opportunities may also open up in the railroad sector within the next couple of
years.

Some major foreign players present in India are Sea King Infrastructure, IJM, Road
Builders Malaysia, Parsons Beinckerhoff, Barclays Bank and Deutsche Bank.
Government of India is also raising funds from agencies like World Bank, ADB
and JBIC.

Major infrastructure sectors of Roads, Airports, Railways, Ports and Real Estate are
summarized below:

Roads

Market overview:
India has one of the largest road networks in the world, aggregating a total length
of 3.3 million km. Road transport is the most preferred mode of transportation
and account for 80 percent of passenger traffic and 65 percent of freight traffic in
India. Broadly speaking, the road network in India is divided into the primary
(National Highways) and secondary system (State Highways and major district
roads). Funds to implement road and highway projects are generally available from
a number of sources, including budgetary allocations by the Central and State
Governments, multilateral agencies, the Central Road Fund and through private
participation.

The Planning Commission of India estimates that around USD 65.4 billion would
be invested in the Roads sector during 2007-2012.

Investments:
Private Equity players have expressed active interest in India’s road and highways.
Companies in this sector have successfully raised growth capital to fund their
existing projects as well as other expansion plans. The top 5 PE deals in roads and
highways during 2006-2009 totaled around USD 373 million. The Indian
Government invested USD 1.94 billion for the development of the National

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Highways and state roads during 2009. The allocation of funds to road transport in
the budgetary estimates of 2010-11 has seen 13% increases from last year to USD
4.14 billion.

Opportunities:
The Indian Government aims to build 12,000 km of highways through 2009-10 for
USD 20.83 billion in the toll collection mode. Apart from completing the ongoing
projects under National Highways Development Programme (NHDP) Phase I and
II, there are several planned projects under NHDP Phase III, IV, V, VI and VII
executing several thousand kilometers of roads and highways. Significant
government investments in road space have created avenues of growth for
construction and Engineering, Procurement and Construction (EPC) players.
There are opportunities in the construction equipment market which is worth 2.6 –
3 billion presently and growing.

The Government of India has permitted 100 per cent FDI in the roads sector and
has also provided tax exemptions and duty free import of road construction
equipment and machinery.

Airports

Market overview:
Air traffic in India has grown substantially over the past few years with the gradual
liberalization of air services and introduction of low-cost airlines. Presently, India
has 136 airports, of which 94 are owned by Airport Authority of India (AAI).
These consist of 17 international and 79 domestic airports. The responsibility of
developing, financing, operating and maintaining all government airports in the
country rests with the AAI.

Passenger traffic handled by Indian airports increased at a compounded annual

growth rate (CAGR) of 17.4 per cent between 2003-04 and 2008-09. Out of this,
the domestic passenger traffic grew at a CAGR of 19.2 percent and international
passenger traffic grew at a CAGR of 10 percent during the same period. Most of
the domestic passenger traffic is in the leisure and tourism segment, making the
regular passenger traffic less than 1% of the total Indian travelers. India has
witnessed substantial growth in its international and domestic trade over the past
few years, which has resulted in a significant increase in the freight traffic, which
grew at a CAGR of 9.7 per cent between 2003-04 and 2008-09. International cargo
traffic increased at a higher CAGR of 13.4 percent as compared to a CAGR of
10.9 per cent for domestic freight traffic during this time.

The growth in international trade and the introduction of low-cost airlines has
substantially increased the quantum of traffic handled at airports. A growing
tourism industry and favorable government policies are promoting the
development of airport infrastructure in the country.

Investments:
Five international airports have been undertaken under the public-private
partnership (PPP) mode – the development of Cochin, Hyderabad and Bengaluru
international airports and the modernization of Delhi and Mumbai international

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airports. The approximate cost of Phase I of all these five projects is USD 5 billion.
The government’s 11th Five Year Plan (2007-2012) has kept a budget of USD 1.9
billion for the development of airport infrastructure. Modernization and expansion
of Chennai and Kolkata airports is underway and the AAI has committed around
USD 780 million for both the projects. The AAI is also upgrading and
modernizing 35 non-metro airports in the country at an estimated cost of USD 1
billion.

Opportunities:
The government expects an investment of around USD 6.5 billion under the 11th
Five Year Plan, for the development of airport infrastructure. Of the total
investment, more than two-thirds is expected to come from the private sector.
There is an emphasis on promoting private participation for the development of
Greenfield airports and modernization of existing airports. The government is
focusing on the city-side development of airports, including real estate and
commercial development. The Ministry of Civil Aviation is also focusing on
improving connectivity to major airports. The government is promoting the
expansion of air connectivity between Tier II and Tier III cities and has introduced
a separate category of Scheduled Air Transport (Regional) Services. The substantial
increase in international air traffic and the growth in the fleet size of domestic
airlines have given India the opportunity to provide Maintenance and Repair
Operation (MRO) services to these airlines.

The Danish companies would have immediate opportunities in the areas of IT

systems and communication, power equipments, planning and consulting, luggage
and baggage systems, pavement solutions and lightening at the airports.

Railways

Market Overview:
India’s rail network is the fourth largest in the world, with a total track length of
nearly 64,000 km spread across 8000 stations. Indian Railways (IR) possesses
225,000 wagons, 45,000 coaches and 8300 locomotives and operates more than
18,000 trains daily. IR accounts for 2.3 per cent of country’s GDP, transporting 40
per cent of total freight traffic and around 19 percent of country’s passenger
traffic.

The Government has increased the allocation of funds to IR to USD 3.49 billion in
the budgetary estimates for 2010-11. The private sector has increased its
participation in railway projects to 19.2 per cent in the 11th five year plan. Freight
traffic has increased at a CAGR of 8.38 per cent and passenger traffic has increased
at a CAGR of 6.26 per cent between 2003-04 and 2008-09. For the improvement
and enhancement of rail infrastructure, the Ministry of Railways has proposed the
development of 50 world class stations on PPP mode. IR has attracted investments
from overseas through strategic alliances with various countries across the globe.

In order to augment capacity and enhance the quality of services, IR has initiated
its most ambitious project – the Dedicated Freight Corridors (DFCs). The aim is to
construct dedicated freight lines along the eastern and western sides of India,

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encompassing a length of 3287 kms with a total project cost of USD 10.33 billion.
The project work has commenced and is scheduled for completion in 2016-17.

Investments:
According to the Planning Commission’s estimates, investment in IR in the 11th
five year plan is likely to be about USD 54.54 billion, as compared to USD 24.93
billion in the 10th plan. The total investments are to be sub divided into several
areas like rolling stocks, capacity augmentation, safety and other works(VSAT
terminal, integrated security systems, unreserved ticketing services), DFCs and
Metro Rail Projects.

Opportunities:
The government plans to provide rail and port connectivity to enhance the
competitiveness of SEZs, through joint ventures and strategic partnerships.
Substantial investments is planned to modernize the rail infrastructure, thereby
creating avenues for growth for companies involved in the manufacturers of
wagons and coaches and construction of bridges and stations. 19.2 percent of the
estimated USD 54.5 billion investments in the IR will be contributed by the private
sector. The DFC project offers significant potential for PPPs in the form of a
build, operate and transfer (BOT)-annuity contract package. Further, the
development of rail-side warehouses and the construction of rails over bridges also
present investment opportunities to private players.

Ports

Market overview:
India has more than 7500 km-long coastline, which is being further developed to
support trade. There are 12 major ports in India and around 200 non-major ports,
of which one-third are operational. In 2008-09, the total cargo handling capacity of
major ports was 574.5 million tonnes per annum (MTPA). The capacity of major
ports is further estimated to increase to 1000 mtpa by 2011-12. Cargo traffic at
Indian ports has increased at a CAGR of 9.1 per cent between 2004 and 2009 and
has grown from 521.6 mtpa to 738.2 mtpa during the period. Indian ports handle
more than 90 per cent of the country’s total trade in terms of volume and around
70 per cent in terms of value. Containerization and container traffic at major ports
grew at CAGR of 15.9 per cent between 2003-04 and 2008-09, presenting an
opportunity for the development of container berths and container-handling
facilities in India.

Investments:
Private sector players are undertaking several port projects including Greenfield
projects. At the end of 2008-09, 17 private projects with an investment of USD 1.1
billion became operational. Backed by high growth and 100 per cent FDI, the
sector witnessed FDI of USD 490 million in 2008-09. The ports sector attracted
significant PE investments worth USD 340 million between 2005 and 2009. In
order to support the maritime industry, the Indian Government launched the
National Maritime Development Programme (NMDP) in 2005, involving a total
investment of USD 20.9 billion up to 2011-12. The government in the 11th five
year plan has set aside a budget of USD 3.9 billion for the development of India’s
major ports.

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Opportunities:

The Indian Government in encouraging private sector participation across major

ports in areas such as the development of cargo handling berths, container
terminals, dry docks and the installation of cargo-handling equipment on a BOT
basis. The government expects USD 7.7 billion investment from private sector in
11th five year plan in the development of major ports and USD 6 billion in minor
ports. The government is also inviting private players to invest in building the
infrastructure of container terminals and set up container handling equipments at
ports. There is also a keen interest in improving the IT capabilities of the ports to
enable them to further improve their efficiency and reduce turnaround time.

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Contact
Trade Council in India
Embassy of Denmark
11, Aurangzeb Road
New Delhi-110011

Anshul Jain, Commercial Officer

B&C, Infrastructure & Defence
ansjai@um.dk
M: +91-98100-28527

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