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THE INFRASTRUCTURE OPPORTUNITY : A MACRO PERSPECTIVE Rajiv B. Lall Managing Director & CEO Infrastructure Development Finance Company Limited JAPAN MAY 2007 1 The Context : India vs China Consumption vs Investment led growth Bottom Up vs Top Down Private vs Government led build out of infrastructure 2 India Infrastructure Investment (% of GDP) 8 7 6 5 4 3 2 33 Year Low 1 0 61 964 967 970 973 976 979 982 985 988 991 994 997 000 003 006 9 E 2 E 9 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 20 20 3 INFRASTRUCTURE SPENDING & FINANCING (% OF GDP AT CONSTANT 2005 / 06 PRICES) 2006/07 (estimated) 2011/12 Spending ~ $ 360 billion Total o/w Government Non-government 5.0 7.5 1.7 3.3 2.0 5.5 4.7 0.3 6.5 1.0 over 5 years or > $ 70 billion / year Financing Domestic Savings Foreign Savings Bulk of spending will have to come from non-government sources. Will need an average of at least $ 5 billion a year in overseas funding just for infrastructure over next 5 years. 4 Sustainable Reform & Infrastructure Development Reform Impulse “Tipping Point” Competition Declining Cost Resistance from incumbents Support from consumers Irrevocable change sustainable reform 5 Telecommunication Reforms Telecommunications In 1994 – Telecom policy – mobile phone licenses for major metros (2 in each city), followed by licenses for mobile and fixed line services in 15 circles (1 each) – major imbroglio due to unrealistic bidding Resolved by a New Telecom Policy in 1999 – migration to a revenue share regime, more players, universal access service – challenge now is rural connectivity Regulator (TRAI) established – initial hiccups but now functioning well Private investment has grown the market - over 200 million subscribers; growing at over 5 million per month Prices – mobile from 37 cents per minute to 0.01 cents per minute 6 Mobile Growth and Effective Charge per minute Mobile Growth and effective charge per minute 102.00 101.00 Fixed Mobile (Rs./min) Mobile Subscriber base (Millions) 16.00 Effective charge (in Rs. per min.) 14.00 75.92 12.00 65.05 10.00 52.17 8.00 6.00 33.60 4.00 13.00 2.00 0.00 0.88 1.20 1.88 3.58 6.50 96.00 90.00 84.00 78.00 72.00 66.00 60.00 54.00 48.00 42.00 36.00 30.00 24.00 18.00 12.00 6.00 0.00 Mobile subscriber base (in million) 18.00 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Sep-05 Dec-05 May-06 Source : TRAI (2005C and 2006C) 7 Foreign Direct Investment Sector Limit Airports Up to 100%, with FDI beyond 74% requiring Government approval Hotels & Tourism 100% FDI is permissible in the sector through the automatic route Housing & Real Estate Construction – 100% (If developed area exceeds 50,000 sq metres) Housing – 100% (If area exceeds 25 acres) Power Up to 100%, FDI allowed in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants Roads & Highways, Ports & Harbours 100% FDI is permissible in the sector through the automatic route in both construction and maintenance Telecommunication 74% FDI is permissible in the sector through the automatic route Source: Investing in India-FDI Manual, DIPP 8 Opportunities Highways : $ 48 billion Total emphasis on BOT roads NHDP 1 to 7 (40,000 kms of new road) Railways : $ 12 billion Private container trains Dedicated Freight Corridors Logistic Parks / Railway Stations Ports : $ 12 billion Concession at major ports and development of minor ports Airports : $ 9 billion Delhi, Mumbai, Bangalore, Hyderabad, Chennai, Kolkata & 35 nonmetro airports Power : $ 130 billion Generation and transmission Wind, hydro 9 IDFC : Who we are Project finance : Debt, Sub-debt, Mezzanine Equity Finance – principal investments and asset management IDFC Private Equity – 2 funds aggregating USD 630 million Project Equity Funds USD 1 billion by March ’08 Investment Banking and Advisory Services Focus areas : Energy, Telecom, Transport & Industrial / Commercial Infrastructure Total Loan Assets of close to USD 4 billion + USD 0.5 billion in equity investments Market cap : USD 2.2 billion Track record of performance and consistent growth 25% of the loans to private infrastructure projects Net Non Performing Assets: Nil FY 2002 – 2007 CAGR in Balance Sheet – 42%, Infrastructure loans: 48%, Total Income: 31%, PAT: 22% Unique Public Private Partnership delivering innovative financial solution to Indian Infrastructure Sector 10