Friday, May 24, 2013

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VCCircle Infrastructure Investment Summit 2010: Power & Transport Sectors

If there is one catalyst that will drive the Indian economy on the magical 10% GDP path, it has to unarguably be a feverish and incessant pace in infrastructure development. Infrastructure—both soft (education and healthcare) and hard (roads, ports, railways, airports, bridges, dams, telecom, power and so on)—has a direct link in the way a country’s citizens, corporate and the economy prospers.

At a very grassroot level, a road connectivity to a village could mean better market access to the farmer and hence a prospect of income enhancement. India often lags behind several social indices and best places to live and do business surveys on account of its infrastructure gaps. So the country may be losing out on FDI and large-scale employment on various counts such as poor connectivity, lack of basic infrastructure facilities such as power, water and roads in many parts of the country. Similarly, at every granular level in the life of a nation, infrastructure enables growth and productivity and the lack of it has the opposite effect.

Today, India stands at the threshold of a golden economic period as it is widely acknowledged as the knowledge superpower with an explosive growth market. The fact that the Indian economy demonstrated its resilience in the face of the world’s worst financial crisis has, in many ways, shifted the spotlight to emerging markets including India.

Infrastructure will play a critical role in India capitalizing that advantage. A Goldman Sachs research paper says, India requires $1.7 trillion over the next decade in infrastructure spending. The Indian government, which kicked off economic reforms in the early 90s much behind developed nations, remains the biggest spender on infrastructure.

Key questions that need answers from the policy-makers: Will the Indian government manage to reduce fiscal deficit and raise spending on infrastructure? How will it walk the tightrope? What are the specific infrastructure (sectoral) targets to be achieved in the next decade? How will India raise more borrowings? Will it look at channelizing pension and insurance funds into the long-gestation infrastructure development?

If government is the biggest spender, it is also the biggest bottleneck. An infrastructure project tends to suffer huge time and cost overruns on account of delays in regulatory approvals, land acquisition, disparity between inter-departments and between states and red tape. What is the one-stop solution to this? Should there be an infrastructure super regulator?

The two other key stakeholders in the infrastructure story are the financiers and investors (who take exposure in the space) and the project developers (companies who build these assets). With long-term debt in the form of pension and insurance funds still some distance away, there is a huge requirement for infrastructure to access low-cost funds over a long gestation period. What are the new ways of attracting funding for large infrastructure projects? Is private equity ready for a big play in this story?

On the other side of the spectrum are companies who either come in as construction contracts or developers who build, own and operate the asset. In the last decade or so, there are dozens of examples of companies which have achieved scale, size and are delivering very high-impact projects. For instance, GMR and GVK, which were fringe infrastructure players till a decade back, today operate India’s busiest airports (Delhi, Mumbai, Hyderabad, Bangalore) among themselves.

The Goldman Sachs research paper too points out that, “In the past six years, the assets and sales of the largest seven infrastructure companies in India have risen by more than 300%. India’s overall return on equity (ROE) has been higher than the region’s (Asia) over the past several years, suggesting higher returns on capital. Furthermore, the large supply-demand mismatch in infrastructure implies that there is significant scope for increasing capital. In the infra sector itself, Indian ROEs are higher than global comparators.”

Is the Indian infrastructure story then an opportunity or a challenge? Which parts of this story will deliver the highest returns? Is power too tough a track in India for the private sector? After the initial phase of highways, which are the other areas within transport that will attract investment?

VCCircle Infrastructure Investment Summit 2010: Power & Transport Sectors will deep-dive into two specific tracks, Transport and Energy, which are on the throes of explosive growth and a transformational phase demonstrating global ambitions in bulge-bracket deal-making.  Infrastructure developers, CEOs, financiers, investors, intermediaries and policy-makers will gather at the summit to share operational tips, policy framework, government plans for various sectors and investment outlook.

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