INFRASTRUCTURE SECTOR

OVERVIEW

According to eleventh plan in frastructure investment will be around Rs.20,54,205 crore.

33.74% of this investment is coming from private sector.

During 2007-08 to 2009-10 capacity addition has been lower than the target Power Roads(NHDP) New Railway lines and doubling of railway lines

OVERVIEW

Sub-sectors where achievements have been above or close to target are Telecommunication Village electrified under RGGVY Railway line electrification Railway gauge convesion New and renewal of roads construction under PMGSY

Growth in core infrastructure services(in %)

SI.NO.

SECTOR 2006-07

2007-08

2008-09 2009-10 2010-11(April-nov)

1. ROADSUpradation of highwaysi. NHAIii. NH(O)

&BRDB

-12.5-10.5

164.612.5

30.917.3

21.44.0

-32.2-0.2

2. POWER 7.3 6.3 2.5 6.8 4.6

3. RAILWAY REVENUE EARNINGFREIGHT TRAFFIC

9.2 9.0 4.9 6.6 3.3

CHALLENGES

To make huge capacity addition in a time-bound manner while ensuring that projects embody value for money and investment results in world class infrastructure

Infrastructure should at the same time be affordable and Sustainable

The public-sector investment would have to increase from 13,11,293 crore in the Eleventh Plan to about 20,49,620 crore.

CHALLENGES

To meet the challenge some innovative ideas and new models of financing would be required

Channeling domestic and foreign financial savings of this scale into infrastructure requires a judicious mix of policy interventions which balances the growth and stability objectives

INCREMENT FLOW OF BANK CREDIT TO INFRASTRUCTURE (in crore)

NON FINANCIAL CHALLENGES

Tendering of unviable projectsBad quality of engineering and Planning at DPR

stageLack of standardized and Sub-optimal contractsland acquisition delaysSlow approval processes, especially environmental

and forest clearancesInsufficient optimization of procurement costs (of

PSUs)Weak performance management in nodal agencies

and PSUs andInadequate availability of skilled and semi-skilled

manpower.

Allocation of Rs. 2,14,000 crore for infrastructure in 2011-12. This is an increase of

23.3 per cent over 2010-11.

This also amounts to 48.5 per cent of total plan allocation

BUDGET PROPOSAL 2011-12

BUDGET PROPOSAL 2011-12

To boost infrastructure development, tax free bonds of Rs. 30,000 crore proposed to be issued by Government undertakings during 2011-12 Indian Railway Finance Corporation Rs.10,000 crore National Highway Authority of India Rs.10,000 crore HUDCO Rs.5000 crore Ports Rs.5000 crore

BUDGET PROPOSAL 2011-12

IIFCL to achieve cumalative disbursement target of 20,000 crore by March 31, 2011 and 25,000 crore by March 31, 2012 Roads & bridges, railways, seaports, airports, inland

waterways, other transportation projects; Power; Urban transport, water supply, sewerage, solid waste

management and other physical infrastructure in urban areas;

BUDGET PROPOSAL 2011-12

Under take out financing scheme, seven projects sanctioned with debt of 1,500 crore. Another 5,000 crore will be sanctioned during 2011-12.

Rural Infra Development Fund – corpus increased to Rs 18,000 crore.

FII Investment in corporate bonds in infra sector raised to 40 billion USD

BUDGET PROPOSAL 2011-12

Government to come up with a comprehensive policy for further developing PPP projects

Viability gap funding for capital investment in setting up of storage capacity.

Infra status for cold chains and post-harvest storage facility.

Infra status for capital investment in fertilizer production

BUDGET PROPOSAL 2011-12

Bharat nirman have been alloted 58,000 crore. Pradhan Mantri Gram Sadak

Yojna (PMGSY) Accelerated Irrigation

Benefit Programme Rajiv Gandhi Grameen

Vidyutikaran Yojna Indira Awas Yojna National Rural Drinking

Water Programme Rural telephony

BUDGET PROPOSAL 2011-12To attract foreign funding for infrastructure, infra

debt funds to be notified, with attractive TDS rate of 5%. Income of Fund exempt from tax

Parallel Excise Duty exemption for domestic suppliers producing capital goods needed for expansion of existing mega or ultra mega power projects.

Full exemption from basic Customs Duty to bio-asphalt and specified machinery for application in the construction of national highways.

COMPARISON WITH PREVIOUS YEAR

Allocation 2010-2011 2011-2012

Estimated total allocation 1,73,000 2,14,000

Rural Infra Development Fund 16,000 18,000

Bharat Nirman 48,000 58,000

NREGA 40,100 48,000

Figures in Rs crore

Important features…

Rural Basic Infrastructure Development fund corpus will be raised from Rs. 16,000 Crores to Rs. 18,000 Crores.

Rural housing board fund budget is raised to Rs. 3,000 crores.

Rs. 500 Crores will be given for SIDBI to refinance banks which give loans to micro, small and medium sized organizations.

CONTD…

Allocations for Rashtriya Krushi Vikas Yojana have been raised from Rs. 6,775 Crores to Rs. 7,860 Crores.

Plan to provide rural broadband connectivity for 2,50,000 panchayitis of the nation within three years.

Rs. 21,000 Crores will be allotted for Sarva Siksha Abhayaan, which is 40% more than the present budget.

Rs. 200 Crores to be spent for purifying lakes and few more rivers other than Ganga.

From October 2011, daily ten lakhs of Aadhar cards will be issued.

Scenario of forthcoming financial year:

It is expected that the economic growth rate of India would be 9% for 2011-12.

Rs. 2,14,000 Crores are allotted for infrastructure field, which is 23.3% more than the present budget. It occupies 48.5% of the total planning budget.

Rs. 1,60,887 Crores are allotted for social aspects, which is seventeen prevent more than the present budget. It comes up to 36.4 percent of total planning budget.

Rs. 52,057 crores will be allotted for education field. It is 24% more than the previous year’s budget.

Rs. 40,000 crores of aim for investment withdrawal.Abiding to hold 51% share in government sector

industries.

IMPACT

Increase in Budgetary allocation will lead to growth in real estate sector as many new projects will be started this year.

Investors will benefit due to tax deductions available and companies will benefit as it will ease their financing needs

As FII limit is increase this will lead to Higher foreign flows into infrastructure sector.

IMPACT

Higher investments for building cold chains will lead to lowered down the wastage of perishable food products and give the boost to Food processing companies.

CONCERNS

Infra financing addressed partly, though execution.Limit for infra bonds not increased; concerns still exist

for financing of USD 1 trillion during the 12th PlanEase in financing of long term funds needed

by infrastructure companies as banks are largely constrained due to asset liability mismatch and at 13% of outstanding credit of banks, infrastructure sector is close to the maximum sectoral allocation limit

RECOMMENDATION

80 per cent minimum norm for physical acquisition of land before tendering should be strictly enforced through suitable disincentives

To overcome execution issues during the construction/building stage, the best available talent/skilled manpower, for the planning process and at project document preparation stage, needs to be hired

RECOMMENDATION

To overcome execution issues during the construction/building stage, the best available talent/skilled manpower, for the planning process and at project document preparation stage, needs to be hired

Significant upfront investment in engineering and planning (for example project creation, contracting, tendering, project scheduling) is required.