Mr BK Chaturvedi, Member, Planning Commission, Mr RV Kanoria, President, FICCI, Dr Rajiv CEO and MD of the Infrastructure Development Finance Company Ltd, Mr PK Chaudhery, Chief Secretary of Haryana, Consul General Mukta Tomar, Mr Ron Somers who drives the USIBC with such passion and sincere commitment, ladies and gentlemen.
It is my privilege to be present here today, for the inauguration of the symposium on 'Indian infrastructure - the one trillion dollar opportunity'. India presents a huge opportunity today in the area of infrastructure investment, for companies operating in the domains of finance, construction, logistics, operation and maintenance of utilities and so on. I am happy that this seminar aims to showcase this opportunity and encourage investments in Indian infrastructure.
2. Infrastructure is generally defined as the physical framework of facilities through which goods and services are provided to the public. The services can be in the nature of public utilities, such as power, telecommunications, water supply, sanitation and sewerage, solid waste collection and disposal and piped gas; or, public works, such as roads, major dams and canals for irrigation and drainage; or, transport, such as urban and inter urban railways, urban transport, ports and waterways and airports. In the parlance of economics, infrastructure is an umbrella term for activities referred to as 'social overhead capital'. And the characteristic features of infrastructure activities are economies of scale and spillover from users to non-users.
3. A large body of research indicates that infrastructure investment has high social rates of return, especially in low-income countries, and is a key determinant of economic growth. Growth of farm productivity and non-farm rural employment are linked closely to infrastructure provision. An important ingredient in China's success with rural enterprises has been a minimum package of transport, telecommunications and power at the village level. Availability of infrastructure services reduces the incidence of poverty and contributes to environment sustainability.
4. In recent years, India’s economic performance has been amongst the best in the world. India's Gross Domestic Product grew five-fold from USD 325 billion in 1990 to USD 1,850 billion in 2011. India, today, is a robust economy, 2nd fastest in terms of growth rate, and 3rd largest in terms of purchasing power parity. While the growth momentum has slowed in recent times, as a result of multiple factors, including the global economic downturn and low demand from OECD countries and the US, our economic performance is still, relatively speaking, among the best in the world.
5. This rapid pace of growth has put enormous stress on infrastructure sector. Spiralling demand for air travel, reliable power supply and efficient ports, roads and railways have not been matched by a proportionate increase in supply. It is widely believed that but for these constraints, India has the potential to achieve even higher GDP growth rates of upto 10 per cent per annum and more. As our Prime Minister Dr. Manmohan Singh said at the Planning Commission meeting last week, “....the most important area for immediate action is to speed up the pace of implementation of infrastructure projects. This is crucial for removing supply bottlenecks, which constrain growth in other sectors. It will also boost investor sentiment to raise the overall rate of investment.”
6. The Eleventh Five Year Plan outlined a comprehensive program for development of infrastructure, especially in rural areas, and in the remote parts of the country, consistent with the requirements of inclusive growth. The total investment needed in infrastructure, defined to include electricity, roads, bridges, railways, airports, telecommunications, irrigation, water supply and sanitation, storage and gas distribution was targeted to increase from an average of around 5 % in the previous plan period to an average of 7.6% of GDP over the entire Eleventh Plan period. In absolute terms, this amounted to an investment, over the Eleventh Plan period, of over US $ 500 billion.
7. The projections made for the Eleventh Plan period were ambitious, to say the least, and it was felt in some quarters that there would be significant shortfalls. However, our achievement has been commendable, even if we have not exactly managed to reach the originally envisaged targets. Thus, even without discounting for exchange rate depreciation, we managed to invest nearly US $ 400 billion in infrastructure, which aggregates to an average of 7.5% of GDP over this five-year period. If the exchange rate had remained as robust as it was when the Plan period commenced, our performance would have been even more commendable. Finally, had the external conditions continued to remain favorable, we may well have exceeded the original target.
8. A significant portion of the investment in India has traditionally been financed by the public sector. During the Tenth Plan, the public sector accounted for nearly 76% of the total infrastructure investments. It is heartening to note that during the Eleventh Plan period, nearly 40% of the total investment has been contributed by the private sector.
9. The significant achievements notched in infrastructure development span multiple sectors. Thus, starting from 2009-10, the value of contracts awarded in the roads and highways sector, by the National Highways Authority of India (NHAI), has been progressively going up. In 2011-12, NHAI awarded contracts covering nearly 8,000 km of road length, which is the highest so far. On the power generation front, we achieved a total capacity addition of nearly 55,000 MW in the Eleventh Plan period, with the capacity addition in 2011-12 alone being of the order of 21,000 MW, slightly less than what was achieved in the entire 10th Plan period, i.e. 22,000 MW. The ninth round of the New Exploration Licensing Policy (NELP) was conducted successfully. In various rounds of NELP, a total of nearly 250 Production Sharing Contracts have been signed so far, with an investment of about US $ 16 billion having already been made in the awarded blocks. The growth story in the Telecom Sector continues, with overall tele-density having touched 80% now. Air traffic in India continues to register significantly higher rate of growth, with passenger and cargo traffic having more than doubled in the last seven years.
10. The aspiration for the next Plan period (2012-2017) is even more ambitious with the projected spending likely to double once again to around US$ 1 trillion. In order to sustain the high growth in infrastructure spending, it is essential to source more funds from the private sector. Accordingly, our Government has laid great emphasis on Public Private Partnerships (PPPs) which combine the efficiency and technological prowess of the private sector, with the public welfare orientation of Government. As we go into the next Plan period, we expect the proportion of funding coming from the private sector to go up to nearly 50%.
11. Achieving high volumes of private investment in infrastructure is not easy. It is necessary to build an environment, which is both attractive to investors and also fair to consumers, especially since many infrastructure projects have an element of monopoly. This calls for an environment in which either the market itself is competitive, giving consumers a choice amongst different suppliers, e.g., in telecommunications or freight container services; or, concessions are given to the most competitive bidders, in an environment where regulatory systems limit user charges to reasonable levels, and regulations set appropriate standards of service, as in the case of electricity, airports, ports, roads and telecommunications.
12. The PPP route for investment in Indian infrastructure represents a commercially attractive opportunity for foreign investors. First, nearly all the infrastructure sectors allow Foreign Direct Investment to come in through the automatic route, to the extent of 100% of the investment. Secondly, India has evolved a stable and transparent regulatory regime in sectors such as electricity, telecommunications, ports, airports, petroleum & natural gas, with a regulator for the coal sector on the anvil. Standardised and sophisticated contract documentation is in place. Finally, we have established unique and innovative financing instruments such as a scheme to support Viability Gap Funding for PPP projects and special purpose vehicles (SPVs) for giving long tenor loans to PPP projects. The issues like land, environment and resettlement and rehabilitation (R&R) are under continuous policy churn, with a view to de-risking both greenfield and brownfield project development. The extent of foreign participation – both through debt and equity – in the financing of India’s infrastructure has been of the order of around 10-12 % in the recent past. I expect, going forward, a much greater degree of involvement of foreign investors in this sector.
13. The sustained economic growth in India and consequent demand for capital and technology, has led to a significant expansion of our bilateral trade and economic ties with the U.S. The growth in bilateral trade and investment is broadly balanced. The US remains the partner of choice for our companies as they look for new technology and capital. We are now working on a bilateral investment treaty that would enhance transparency and predictability for investors, and support economic growth and job creation in both countries. India’s investment requirements of more than a trillion US dollars in infrastructure development over the next five years offers enormous opportunities for US businesses to deepen our economic partnership. Speaking at the Infrastructure roundtable in New Delhi in March this year, the then US Commerce Secretary John Bryson said, "..it is exciting to see India’s trillion-dollar commitment to infrastructure over the next 5 years. This plan is both ambitious and admirable. It includes as many as 600 major projects, including a strong emphasis on public-private partnerships. ...American businesses want to play a role in helping to turn this plan into a reality. The U.S. government fully supports their efforts to build partnerships that are mutually beneficial to both of our countries."
Commerce Secretary Bryson’s visit to India with a strong infrastructure delegation earlier this year and the launch of the first Infrastructure Debt Fund in India, with a corpus of 2 billion US dollars, points to a clear commitment on the part of both our governments and the private sector to harness the true potential of our cooperation in the infrastructure sector.
14. A Global Infrastructure Conference was recently organized by the US Department of State to showcase the investment opportunities in the Indian infrastructure space and to encourage US based companies to invest in India. This conference witnessed a high degree of interest in Indian infrastructure segments, such as civil aviation and road transport. The Indo-US Energy Dialogue to be held in Washington DC two days from now will highlight investment opportunities in the energy sector, in areas such as power and non-renewable sources of energy. This seminar will, I hope, further cement the efforts being made by the two Governments to encourage US companies to invest in Indian infrastructure, by providing detailed information on the financial and regulatory issues.
Obviously, speaking here as India's Ambassador to the United States, I cannot but take inspiration from a remembrance of things past. Today, as we speak of the work that lies ahead for infrastructure development in India, I am reminded of the creation of one of the marvels of Indian infrastructure, that project which Prime Minister Nehru called one of the new temples of a resurgent India, the great Bhakra Dam, one of the highest straight gravity dams in the world, which today is the major supplier of power to our Northern Grid. As the historian Ramachandra Guha says, the men and women who worked at Bhakra were all Indian, with one exception. This was an American, Harvey Slocum. He came to the hills around Bhakra and the raging River Sutlej from building the Coulee Dam in Washington State. He imprinted his own distinctive style of working on the project, even establishing a direct line of contact to Prime Minister Nehru. Once when the telephone system at the project site broke down, he wrote to the Prime Minister informing him that "only God, not Slocum, could build the Bhakra Dam on schedule". Styled as "the best dam man in the world", flamboyance personified, driving around in a powder blue Cadillac, Slocum famously declared mankind "as the most ornery (meaning stubborn, rough around the edges!) critter in the world": "He comes to a mountain, and he says, 'You can't stop me' and he drives a tunnel through it. He comes to a deep gorge, and he says, 'I'll step over you' and he throws a bridge over it. He comes to a great, ugly river, and he says, 'you're dangerous and I'm gonna plug you up' and by God, he does it" . Ladies and Gentlemen, I hope the spirit of Harvey Slocum is smiling down on us today!
15. I once again congratulate the organizers for having put together a very ambitious agenda, with distinguished panelists and speakers, who represent Government, private industry and the financing community. I urge the investor community present here today to take full advantage of the discussions and hope, that, they will come to a shared conclusion that Indian infrastructure today represents a very significant investment opportunity, which they must harness for the good of both our economies and peoples.