The Indian economy is the 10th largest in the world and has the 4th largest GDP in terms of purchasing power parity. The economic growth of this country has been the second fastest during the current decade of the 21st Century. The GDP growth has been nine percent during 2006-08 and has shown tremendous resilience by growing at seven percent during the last year of recessionary trend witnessed all over the world. By the end of this fiscal year, nine percent growth will be achieved again as per the Economic Survey of India.
In India, the overall economic growth targets are set by the Planning Commission in what we call five-year plans. We are now into the end of the 11th five-year plan (2007-12). The Plan targets investment of INR20,562bn ($453,427m) for infrastructure, including utilities and transport infrastructure as well as telecoms and irrigation. Based on revised estimates announced in the MTA, as detailed by Daily News & Analysis (DNA) India, investment is likely to reach INR20,542bn ($453,856m). This is a difference of around $430m but still very close to target, especially taking into account the difficult economic environment. So, with a double digit growth target for the next five-year plan, the Indian infrastructure sector is already on a high growth trajectory.
India has the second largest road network in the world with over 3.3 million km of roads consisting of 80 percent rural and district roads, 18 percent state highways and two percent national highways. 65 percent of the total freight and 80 percent of the total passenger traffic of the country travels on this network. As per the report of the Planning Commission for the 11th five-year plan, “roads are the key to the development of our economy. A good road network constitutes the basic infrastructure that propels the development process through connectivity and opening up the backward regions to trade and investment”. However, despite their importance to the national economy, the road network in India is grossly inadequate. There is a huge scope for expansion, augmentation and greenfield development in the sector. Roads are now recognised as critical to economic and industrial growth in India.
National Highways in India
National Highways which constitute just two percent of the overall road network in India caters to more than 40 percent of the total road traffic. These form the arterial network connecting different States and provinces in the country. The National Highways Authority of India (NHAI) is the regulatory body constituted for development of these 70,548km of National Highways across the country. They have formulated National Highways Development Plan (NHDP) and have been implementing it in seven phases. Phase I and II are on the verge of completion whereas a lot of work needs to be done on the other phases. Work on 26191km of National Highways is yet to be awarded. The Minister of Road Transport & Highways, Mr Kamalnath has identified this challenge and has set an optimistic target of achieving 20km of road per day on the National Highways network. This works out to 7300km per year. This would work out to an annual budgeted expenditure of 10bn.
35 percent of this expenditure is expected to come from Private investors. This target has definitely witnessed increased traction in the bidding activities at NHAI. In FY 2009-10, 3360km length of roads have been awarded as against a mere 624km in the previous fiscal. But still, they are short by more than 50 percent of the target. Revised work plan by NHAI now proposes to award 15000km of roads till end of FY-11. It is also envisaged to convert around 10000km of State Highways into National Highways. These government initiatives have opened up latent opportunities for both the infrastructure developers and the construction companies. The growth potential in the road sector is also huge with the country’s GDP aiming for the double figure mark in the 12th five-year plan.
IRB has emerged as one of the leading players in the Indian roads & highways sector. With its strong in-house integrated execution capabilities, the company is arguably the biggest BOT Road constructor and operator in the country. The first BOT Road Project in the country was executed by IRB. It has currently 16 BOT road projects under its belt of which 10 are operational and six are in various stages of implementation. This covers a total of 5735 lane km across six states in the country. IRB also takes pride in holding a market share of 9.31 percent of the Golden Quadrilateral which connects the four main metropolitan cities of the country. Looking at the NHAI work plan and the ambitious target of the Minister, the Indian road sector is expected to grow five-fold in the next two years, we are targeting at winning projects worth $1bn annually which would result in a significant increase in our annual turnover each year from the next fiscal year.
The 12th Five-Year Plan
Our Honorable Prime Minister has touted ambitious targets for the 12th five-year plan, which will run from 2012/13 to 2017/18.
The headline figure, which has grabbed the most attention is a target for INR45,000bn (US$1trn) of investments during the 12th five-year plan. The figure is double that of the 11th five-year plan. Singh is hoping that through doubling investment targets, real GDP growth can be sustained at an average rate of 10 percent per year between 2012/13 and 2017/18.
In order to unlock the double digit growth targeted, the contribution of the private sector will be crucial. With financing as constrained as it is in the domestic project finance market, and the deep rooted obstacles in the business environment, the ability for private sector investments to push growth this high would be challenged to the hilt.
In the 12th five-year plan, the government is targeting 50 percent of investment to come from the private sector, equal to $500bn. In this scenario, India remains an attractive market to infrastructure investors, driven by the strong fundamentals of economic and population growth.
Virendra Mhaiskar is Chairman & Managing Director of IRB Infrastructure Developers Limited (IRB), Mumbai, India. IRB is one of the leading Roads & Highways Developers in India and pioneers in adopting the PPP model in the Indian Highways industry