The success in garnering private sector investment in infrastructure through the PPP route during the Plan has laid solid foundation for a substantial step in private-sector funding in coming years.
The Economic Survey 2011-12 tabled in Lok Sabha today by the Finance Minister Pranab Mukherjee, says that the overall performance in creation of infrastructure in physical terms, in some sectors, during Eleventh Five Year Plan, have been remarkable as compared to the previous Five Year Plan, though there have been slippages in some sectors.
The success in garnering private sector investment in infrastructure through the public-private partnership (PPP) route during the Plan has laid solid foundation for a substantial step in private-sector funding in coming years. PPPs are expected to augment resource availability as well as improve the efficiency of infrastructure service delivery.
The Planning Commission has projected an investment requirement of over Rs 45 lakh crore (about US $ 1 trillion) during the Twelfth Plan (2012-12). It is projected that at least 50% of this investment will come from the private sector as against the 36% anticipated in the Eleventh Plan and public sector investment will need to increase to over Rs22.5 lakh crore as against an expenditure of Rs13.1 lakh crore during the Eleventh Plan. Financing infrastructure will, therefore, be a big challenge in the coming year and will require some innovative ideas and new models of financing, says the Survey.
The Survey has pointed out that the performance of broad sectors and sub sectors in key infrastructure areas in the current year presents a mixed picture.
There was improvement in growth in power, petroleum refinery, cement, railway freight traffic, passenger handled at domestic terminals and upgradation of NHAI. Coal, Natural Gas, Fertilizers, handling of Export Cargo at airports and number of cell phone connections show negative growth. Steel sector witnessed moderation in growth.
According to the Survey, the performance in core and infrastructure sector is still to a large extent dependent in public sector projects the flash report for the month of October 2011 tracks the progress report of 583 projects in different sectors of which-only 7 are a head of schedule, 166 are on schedule, 235 are delayed and remaining 175 projects have been sanctioned without specifying any commissioning schedule.
This has implied of cost over run of 15.3%. The Survey says that such delays increase project risk and cost, and could be minimized.
As per to the Survey, credit growth to the infrastructure sector turned negative in the current financial year. The incremental credit flow to the infrastructure sector during April-December 2011 was nearly 61% of the credit to this sector during April-December 2010. A significant reduction in credit flow was observed for the power and telecom sectors.
The total FDI inflows into majors infrastructure sectors during April-December 2011 however, registered a growth of 23.6% as compared to the FDI inflows during April-December 2010. Power (43.6%), Non Conventional Energy (338 %) and Telecommunications (499%) were the preferred sectors for foreign investors. Other sectors, however, failed to share the buoyancy in FDI inflows.
The Survey has commented that in the coming years, financing of infrastructure also need to consider the plateauing of the domestic savings and macro availability of resources. There is need for introducing more innovative schemes to attract large-scale investment into infrastructure.
In view of the massive requirements of funds, all efforts need to be made to attract big ticket long-term investors such as strategic investor, private equity funds, pension funds, and sovereign funds.
Strengthening domestic financial institutions and development of a long-term bonds market may be critical. Besides financing, the infrastructure sector has also suffered due to a time lag in physical capacity creation and time over-run. These not only delay availability, but also raise pricing and affordability issues.
Infrastructure costs as these are often non-tradable may also affect competitiveness of economy in long run. The Survey has stated that a harmonized list of main sectors and sub-sectors of infrastructure approved by the Government to serve as a guide for all agencies responsible for supporting infrastructure, is a welcome move.