India’s infrastructure investment requirement



Investment requirements

The Planning Commission of India is responsible for creating five-year plans (or FYPs) for India. The eleventh FYP, which was for 2007-12, had estimated infrastructure investment requirements to be about 20.5 trillion rupees at FY07 prices, or about $514 billion.

The Planning Commission has estimated that in order to attain an economic growth rate of 9% per annum, investment in infrastructure has to be to the tune of 41 trillion rupees, or about $1 trillion, during the twelfth FYP, from 2012 to 2017.

Infrastructure Investment at FY07 Prices

This amount is double the amount envisaged in the previous plan. In nominal terms, given an inflation rate of 5% per year, this planned figure results into a target investment of around 65 trillion rupees for the twelfth FYP. Half of this estimate is expected to come from the private sector.

Article continues below advertisement

Funding gap

Even with 50% of this requirement being fulfilled by budgetary support, and making a provision of additional funds from the private sector, there is a funding gap of 9% of the total requirement. The additional funds from the private sector are expected due to policy and regulatory recommendations. Budget support quantum is not cast in stone and may change. Any shortfall on this count can significantly increase this funding gap.

Source of Funds Estimated for Twelfth FYP

NBFCs refer to non-banking financing companies and ECBs refer to external commercial borrowings.

This gap is one reason that the government is looking for potential overseas investors interested in investing in infrastructure. Doing business ties in here, as easy norms coupled with speedy implementation will bring in the money required to fill this gap.

Like the doing business factors, this does not have a direct impact on India ETFs like the WisdomTree India Earnings Fund (EPI), the PowerShares India Portfolio (PIN), the EGShares India Infrastructure ETF (INXX), the iShares S&P India Nifty 50 Index Fund (INDY), and the iShares MSCI India ETF (INDA). However, persistent weakness will affect the economy as a whole and these ETFs will suffer.

The next article will see how the government’s initiative to channel money into the infrastructure sector has fared.


More From Market Realist