Indian Infrastructure Development

Bearing the weight of 1.2 billion people

Following its electoral victory in May, India’s Congress Party announced plans to boost domestic spending to help weather the global economic crisis, and singled out infrastructure development as a special priority. With a population of nearly 1.2 billion and ranking among the world’s lowest in per capita GDP, India has long struggled to build and maintain a civil infrastructure to bear its rapidly growing weight. Roads, railways, and access to electricity in rural areas are especially underdeveloped. Many in India also consider the country’s crumbling infrastructure a key constraint on the growth of the national economy. Indeed, Prime Minister Manmohan Singh underlined the importance of the issue to parliament on June 9th, announcing that there is “considerable scope to increase public expenditure, particularly on infrastructure projects.” Ergo asked four Indian experts to comment on the prospects for infrastructure development in India and related opportunities for investors.

• Expert 1: Senior Economic Advisor to Prime Minister Manmohan Singh

  "The Prime Minister and his entire team have realized that the constraint to our higher economic growth is primarily due to a major deficiency in the infrastructure sector. We didn’t have this during previous governments primarily due to the weak leadership in this sector [which] was being handled by the non-Congress parties, like DMK or JD, and they were not monitored or led by the Congress leaders. Now a lot of money has been allocated for infrastructure and they have chosen people who can give results. This is a sign that they want to make progress."

• Expert 2: Member of Indian Secretariat for the Committee on Infrastructure and Advisor to National Planning Commission

  "We have prepared a plan to spend about $500 billion in infrastructure over the 11th Plan period from 2007 to 2012. We’ve estimated that about 30% will come from private sector resources as far as private investment or public-private partnerships. What we have planned is about double what was done over the last five year period. We want to bring it at par with at least East Asian developing countries."

• Expert 3: Retired Brigadier in the Indian Army and current director of a strategic risk firm

  "My priority based on scope of investment and ease of entry would be ports and shipping, power, telecommunications, urban housing, and roads and highways. Roads and highways, though last, is also a wildcard [because] there is a good Minister at the helm who may be able to push the things in this challenging but high priority field. So a high risk appetite client may also go for this sector."

• Expert 4: Senior Fellow at a regional think tank who focuses on socio-political and economic issues in India

  "Priority regions are: coastal states because of ports and manufacturing hubs; northeast India—underdeveloped and government committed to invest otherwise the region can be a source of internal insecurity arising from separatist groups, insurgents like Bodo, Maoists, and ULFA; and North India."

Ergo's House View

Having recently completed a massive global study on infrastructure development, Ergo has detailed insights into more than 50 major infrastructure projects in every sector, including: $15 billion to strengthen Indian rail infrastructure to help supply coal to power plants; the expansion of India Gandhi International Airport in New Delhi; and up to $45 billion to be spent as part of India’s National Highway Development Project.

Renewed emphasis on infrastructure growth will enable India to meet increased demand from an expanding population while at the same time creating jobs and opportunities for both foreign and domestic investors. The current Congress government recognizes the importance of infrastructure development, not only to meet domestic need, but also to remain competitive with regional rival China and within the global economy.

The energy and power sectors will also require significant public and private investment in the coming years as the government attempts to stem India’s growing energy deficit. Plans are already underway to construct as many as 40 nuclear power plants across the country and there is tremendous potential for India to increase power generation from renewable sources as well. A recent UN report highlights that Indian investment in renewable energy grew by 12% in 2008. One wonders, however, whether that rate is sustainable.