Certain infrastructure related initiatives, such as Bharat Nirman for rural development, as well as sectoral initiatives, such as the National Highways Development Programme (NHDP), the Airport Financing Plan, and the National Maritime Development Programme and the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) have been strengthened as compared to the previous years’ plan. In this article, we will go through PCI’s estimates for infrastructure spending during the XIth plan period and compare them to the Xth plan (FY03-FY07).
As per PCI’s estimates, for India’s GDP to grow annually at an average of 9%, the GCF (Gross Capital Formation) in infrastructure should be increased to levels in excess of 11% by the end of the FY12 (around 5% currently). Realistically, however, starting from a GCF level of less than 5% of GDP observed in FY05, such a rapid change in the structure of investments may not be feasible. Moreover, it may not be a necessary condition for achieving a 9% growth since many East Asian countries may have invested more than is essential and while 10% investment is desirable, India could try to achieve it over a longer period. Taking these factors into account, a GCF in infrastructure of around 9% of GDP by the end of the XIth plan seems to be more realistic.
A look at the estimates
As seen the table below, the thrust on power and electricity continues to remain top priority for the government. In order to achieve its objective of “Power for all” by 2012, the government has estimated an increase of 111% in spending towards power projects during the XIth plan (as compared to the Xth plan spending towards the sector). The other vital infra sectors (see table below) have also been allotted significant increases during the current plan period. The PCI also estimates private sector share in total infrastructure spending to increase from 18% in Xth Plan to 30% in the current one.
As can be seen from the table below, barring electricity and storage, the government’s share in investments is seen dropping in favour of private participation. This PPP (public-private participation) route adopted by the government (especially seen in the electricity, road, telecom, port and airport sectors) is seen as the way to increase private sector’s participation in infrastructure spending going forward. This we see as a positive, as it will help a faster development along with the de-bottlenecking of certain sectors. However, investments in irrigation, rural roads and other roads in backward and remote areas and water supply and sanitation sectors will be almost entirely undertaken by the government.
Planning Commission's estimates of infrastructure spending| (Rs bn) Sector | Xth Plan (Anticipated) | Share (%) in Xth plan | % of total Exp. | XIth Plan (Estimated) | Share (%) in XIth plan | % of total Exp. | Increase (%) over Xth plan |
| Electricity | 2,919 | - | 33% | 6,165 | - | 30% | 111% |
| Public | 2,000 | 69% | 4,540 | 74% | 127% | ||
| Private | 918 | 31% | 1,625 | 26% | 77% | ||
| Roads | 1,449 | - | 16% | 3,118 | - | 15% | 115% |
| Public | 1,379 | 95% | 1,993 | 64% | 45% | ||
| Private | 70 | 5% | 1,125 | 36% | 1507% | ||
| Telecom | 1,234 | - | 14% | 2,670 | - | 13% | 116% |
| Public | 790 | 64% | 893 | 33% | 13% | ||
| Private | 444 | 36% | 1,777 | 67% | 300% | ||
| Railways | 1,197 | - | 14% | 2,580 | - | 13% | 116% |
| Public | 1,194 | 100% | 2,075 | 80% | 74% | ||
| Private | 3 | 0% | 505 | 20% | 16336% | ||
| Irrigation | 1,115 | - | 13% | 2,231 | - | 11% | 100% |
| Public | 1,115 | 100% | 2,231 | 100% | 100% | ||
| Water Supply & Sanitation | 648 | - | 7% | 1,991 | - | 10% | 207% |
| Public | 638 | 98% | 1,937 | 97% | 204% | ||
| Private | 10 | 2% | 54 | 3% | 430% | ||
| Ports | 41 | - | 0% | 739 | - | 4% | 1705% |
| Public | 22 | 53% | 195 | 26% | 791% | ||
| Private | 19 | 47% | 545 | 74% | 2751% | ||
| Airports | 68 | - | 1% | 347 | - | 2% | 413% |
| Public | 38 | 57% | 136 | 39% | 254% | ||
| Private | 29 | 43% | 212 | 61% | 621% | ||
| Storage | 48 | - | 1% | 224 | - | 1% | 364% |
| Public | 14 | 30% | 112 | 50% | 676% | ||
| Private | 34 | 70% | 112 | 50% | 231% | ||
| Gas | 87 | - | 1% | 205 | - | 1% | 135% |
| Public | 87 | 100% | 140 | 68% | 60% | ||
| Private | N.A. | - | 65 | 32% | - | ||
| Total | 8,805 | - | 100% | 20,272 | - | 100% | 130% |
| Public | 7,178 | 82% | 14,252 | 70% | 99% | ||
| Private | 1,627 | 18% | 6,020 | 30% | 270% |
The total expenditure in the infrastructure space during these five years of the current plan has been estimated to increase by 130% to over Rs 20.2 trillion in absolute terms as compared to the Xth 5-year plan total of Rs 8.8 trillion. This shall open up tremendous opportunities for companies operating in this space – ones that are executing the projects and others that are providing resources like equipments, fuel and manpower.
However, while these plans look grand and when achieved can take India to the next level of growth, execution will remain an issue. This is especially considering the past track record of such plans, shortage of manpower across industries, rising commodity prices that have led to escalation in project costs and equipment shortages. Some leading engineering majors have, in fact, recorded losses on certain projects in the latest quarter on account of execution delays due to equipment and manpower shortages and have also seen their margins getting impacted.
Starting next article onwards of this series, we will be looking at each of these sectors individually and the kind of opportunities that India Inc. has therein.
During the eleventh five-year plan (2007-2012), the total investment set to be pumped into the power sector is to the tune of Rs 6,165 bn (assuming the 15% spillover into the next 5-year plan). These are Planning Commission of India’s (PCI) estimates. Below, we can see the commission’s estimates for the power sector spread over these five years of the plan period.
Year (Rs bn) 2007-08 2008-09 2009-10 2010-11 2011-12 Total XIth Plan Share % Public 544 683 860 1,084 1,369 4,540 74% Private 198 245 305 385 491 1,625 26% Total 742 928 1,165 1,469 1,860 6,165 100% % of total 12% 15% 19% 24% 30% 100%
As seen above, the expenditures are expected to grow in absolute terms year-on-year with 12% of the total being invested in FY08, subsequently increasing to 30% in FY12. However, interestingly, the share of private sector is expected to come down to 26% of total investments during the current plan period, from 31% in the Xth Plan (2002-2007). As far as the three segments of power generation, distribution and transmission are concerned, 56% of the total investments are planned towards setting up generation capacities with the remaining shared almost equally by the transmission and distribution segments. PCI’s estimates for each of these segments are as follows -
| (Rs bn) | Generation | Transmission | Distribution | Total XIth Plan |
| States | 956 | 468 | 933 | 2,357 |
| Central | 1,231 | 527 | 425 | 2,183 |
| Private | 1,243 | 298 | 85 | 1,625 |
| Total | 3,430 | 1,293 | 1,443 | 6,165 |
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With more than half the country’s population residing in rural areas, rural electrification is a major concern for the nation. Alternatively, we can say that there lies a huge opportunity in this particular space. The PCI has estimated that the rural electrification initiative will require investments of around Rs 340 bn (5% of total expenditue in this sector) over the next few years. The Government, through initiatives like Bharat Nirman and RGGVY (Rajiv Gandhi Grameen Vidyutikaran Yojana), plans to reach out to more than 23 m households.
Target Vs Achievement
The XIth plan proposes an addition of almost 80,000 MW to country’s power generation capacity, an increase of 67% over the installed capacity at beginning of the plan period. However, the actual achievement of this target will be keenly watched, considering the poor track record of the past. As seen from the adjacent chart, the situation has been worsening if one were to take into account the under-achievements of the past three completed plan periods (8th, 9th and 10th). As reported by the Central Electricity Authority (CEA), the major reasons for this under achievement have been time and cost overrun constraints faced by companies, whose order backlogs contained projects from the previous plans. Further, issues like equipment supplies and the overall regulated nature of the electricity sector (which repelled fresh investments, especially from the private sector) also impacted the sector’s growth.
Issues besides those in generation, like high levels of transmission and distribution losses, also added to the problems. As a matter of fact, India tops the charts when it comes to T&D losses. While the power ministry promulgated the APDRP Act (Accelerated Power Development and Reforms Programme) in 2001 with a vision to cut down India’s T&D losses to levels of 15% by the end of the Xth plan, things have remained where they were. As a matter of fact, the average T&D losses for all states remained at 40% (including uncollected bills) in the beginning of 2007. The same vision has now been shifted as a goal to be achieved during the XIth plan.
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