2. Introduction
• Public infrastructure and services both play a huge part in any
modern society.
• We use the roads each day, our children attend schools or
universities, and we rely on hospitals and medical developments
funded from the public purse.
• We even depend on communications through the world wide web,
the result of publicly funded research. But public infrastructure and
services are a paradox, too.
• On the one hand they are both necessary for day-to-day living and
fundamental to the longer-term development of our communities.
3. Five year plans in
India
• From 1947 to 2017, the Indian
Economy was developed on the
concept of planning and was
carried out by the planning
commission of India
• The new government led by Narendra Modi,
elected in 2014, has announced the dissolution
of the Planning Commission, and its
replacement by a think tank called the NITI
Aayog (an acronym for National Institution for
Transforming India). So no 13th five year plan
4. Five-year plans and their objective
Five-year plan Year Focus & target growth rate
First 1951-1956 Dev of Primary sector 2.1% 3.6
Second 1956-1961 Rapid industrialisation 4.5 % 4.3
Third 1961-1966 Sino Indian war and focus shifted to defence and Indian army 5.6% 2.4
Fourth 1969-1974 On self reliance , Nationalisation of Banks 5.6 3.3
Fifth 1974-1978 Employment and poverty alleviation, Focus on roads 4.4 4.8
Rolling plan 1978-1980 Changing as per the requirement of Economy
Sixth 1980-1985 Economic Liberalisation 5.2 5.7
Seventh 1985-1990 Increasing productivity and social justice 5 6.01
Annual plans 1990-1992 Fast changing economic situation
Eighth 1992-1997 LPG, Modernisation of industries 5.6 6.8
Ninth 1997-2002 Rapid economic growth and infrastructure dev. Focus on PPP 7.1 6.8
Tenth 2002-2007 Target growth rate of 8%, focus on Infra dev 8 7.6
Eleventh 2007-2012 Inclusive growth and focus on infrastructure, roads & water 9 8
Twelfth 2012-2017 I trillion USD on infra growth 9
5.
6. Capital formation from Public and Private sector
Plan Public Sector in percent Private sector In percent
First 46 54
Second 54 46
Third 63 37
Fourth 61 39
Fifth 58 42
Sixth 53 47
Seventh 48 52
Eighth 45 55
Ninth 33 67
Tenth 24 76
Eleventh 22 78
Twelfth
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7. Infrastructure is one driver of economic
development, enabling globalization
The key question is whether private
investments in infrastructure are profitable?
8. Case study of Air India
The airline was founded by
Jehangir Ratanji Dadabhoy Tata
as Tata Air Services, later renamed
as Tata Airlines in 1932.
Post World War II, it had become a public
limited company and was renamed as Air
India. In 1953, the GOI passed the Air
Corporations Act to purchase a majority
stake in the airline carrier from Tata Sons.
Its founder JRD Tata continued as the
chairman till 1977.
When the aviation sector was opened up
for private participation in 1994, 6 major
private airliners i.e. Jet Airways, Air
Sahara, Modiluft, Damania Airways,
NEPC Airlines, and East-West Airlines,
entered the market, eating into Air
India’s space.
In 2000–01, futile attempts were
made to privatise Air India. Plus,
these low-cost airlines started
causing a dent into Air India’s
market share.
In order to combat this competition, the
then UPA government decided to merge
Air India and it’s domestic arm Indian
airlines into a single entity, which was
completed in 2006. The idea was to
leverage the combined assets and capital
to push growth.
But, from 2006 onwards it suffered
losses after its merger with Indian
Airlines. This, majorly because prior to
the merger, the ministry had purchased
111 new wide-bodied aircrafts which
cost them close to 67,000 crore. And
post merger, the combined entity had
close to 30,000 employees in its payroll.
According to the ministry reports, the
airline lost approximately ₹570 million
(US$7.6 million) because of extra
commissions that Michael Mascarenhas,
the then-managing director had
sanctioned.
The combined losses for Air India and
Indian Airlines in 2006–07 were ₹7.7
billion (US$100 million) and after the
merger, it went up to ₹72 billion (US$960
million) by March 2009.
By March 2011, Air India had
accumulated a debt of ₹426 billion
(US$5.7 billion) and an operating loss of
₹220 billion (US$2.9 billion). It was
seeking ₹429 billion (US$5.7 billion) from
the government.
The then government agreed to provide
Air India about Rs 30,000 crore in equity
funding, spread over a decade.
As on August 31, Air India had a total
debt of ₹61,562 crore.
9. Observations
• One more glaring reason observed behind Air India’s decline, was its
difficulty or reluctance in keeping up with its competitors, who were
using smaller aircrafts that were faster, more fuel-efficient and
required less servicing in comparison to it’s aging fleet.
• A CBI investigation in 2011 had revealed that the national carrier was
paying for these 111 planes through various loans and its internal
resources. A double whammy to the chaos were the agitating
employees who were upset with the wage disparities.
• In 2012, a study commissioned by the Corporate Affairs Ministry
recommended that Air India should be partly privatised.
• At the end 2016, the NITI (National Institution for Transforming India)
Aayog proposed the divestment of Air India to the Ministry of Civil
Aviation.
• Government has decided to sell 100% shares of both Air India and its
budget carrier Air India Express as well as 50% shares of AISATS (Air
India Limited and Singapore Airport Terminal Services).
• To attract more bidders this time, the government has already
decreased nearly ₹30,000 crore (US$4.0 billion) of debts and liabilities
in an SPV (Special Purpose Vehicle).
• On 27 January 2020, the Gov. released the Expression of Interest (EOI)
to invite bidders.
10. Action Taken
The reserve price first set by the government at ₹12,906 crore was calculated as a weighted
average of the business valuation and asset valuation.
Air India has been sold to Tata Sons for ₹18,000 crore as the conglomerate outbid the
consortium led by SpiceJet’s chief Ajay Singh.
The Tata Sons holding company Talace Pvt Ltd will take over ₹15,300 crore and the remaining
₹46,262 crore will be transferred to Air India Assets Holding Limited (AIAHL).
The VVIP planes that carry the President and Prime Minister will retain their Air India One call
sign but their management and maintenance will be handed over to the Indian Air Force.
Tata Sons will now pay ₹2,700 crore in cash to the government and take over the remaining
debt of ₹15,300 crore.
11. Story of Air India
• If private funds be used for future public infrastructure, education
and hospital care as part of the growing world wide political support
for privatization of government services then ……….
12. Example
• Some infrastructural facilities are either built or run by the government and
public sector enterprises or if the private sector is permitted to make
investments in them and run them, they need to be regulated by the
government, so that they should not exploit the consumers.
• For example, the distribution of electricity which is an infrastructural
service is being provided by two power Companies of Tata and Reliance in
different regions of Delhi, the electricity rates and other charges are being
regulated by an authority appointed by the government.
• Similarly, in telecommunication, which is another infrastructural service,
various companies such as Airtel, Vodaphone, Idea, MTNL are providing
this service of wireless telephony (i.e., mobile service) are being regulated
by TRAI.
13. What is infrastructure
Infrastructure is the set of fundamental facilities and systems that support the
sustainable functionality of households and firms
Definition: Infrastructure is often assumed as economic infrastructure, including
economically relevant sectors such as transport, energy, electricity,
telecommunication but other definitions refer as well to social infrastructure with
facilities and services like hospitals, schools and governmental institutions.
14. What is the meaning of the word
Infrastructure
The word infrastructure has been used in French since 1875 and in English since 1887,
originally meaning "The installations that form the basis for any operation or system“
The word was imported from French, where it was already used for establishing a roadbed
of substrate material, required before railroad tracks or constructed pavement could be
laid on top of it.
The word is a combination of the Latin prefix "infra", meaning "below", as many of these
constructions are underground (for example, tunnels, water and gas systems, and railways),
and the French word "structure" (derived from the Latin word "structure").
15. What is not infrastructure
• Land improvement and land development are general terms
that in some contexts may include infrastructure
(Land development is altering the landscape in any number of ways
such as: Changing landforms from a natural or semi-natural state
for a purpose such as agriculture or housing, Subdividing real
estate into lots, typically for the purpose of building homes., real
estate development or changing its purpose, for example by
converting an unused factory complex into a condominium.)
• Eg: For example, an irrigation canal that serves a region or
district would be included with infrastructure, but the private
irrigation systems on individual land parcels would be
considered land improvements, not infrastructure. Service
connections to municipal service and public utility networks
would also be considered land improvements, not
infrastructure
16. Definition of Infrastructure
• Infrastructure is defined as a physical framework of facilities through which goods are provided to the public and is a necessary condition for
achieving sustained economic growth. India requires a solid backbone of infrastructure. This is generally called traditional Infrastructure
• Keynesian economics, the word infrastructure was exclusively used to describe public assets
that facilitate production, but not private assets of the same purpose.
Historically, investments in the infrastructure sector, particularly in the roads and highways, were being made by the Government mainly because of the
large volume of resources required, long gestation period, uncertain returns and various associated externalities. The huge resource requirements and
the concern for efficiency has made the Government move from a traditional way of “provider of services” to
“facilitator and regulator of services”
This has given way for
Public Private Partnership models
17. Types of Infrastructure
• The term “infrastructure” generally means the notion of physical
resource systems made by humans for public consumption.
(1) transportation systems, such as highway and road systems,
railways, airline systems, and ports;
(2) communication systems, such as telephone networks and postal
services;
(3) governance systems, such as court systems; and,
(4) basic public services and facilities, such as schools, sewers, and
water systems. I refer to these resources as “traditional infrastructure.”
18. Traditional infrastructure
• When it means traditional infrastructure, it means that the government
has played a significant and widely accepted role in ensuring the
provision of many traditional infrastructures
• Though private parties and markets play an increasingly important
role in providing many types of traditional infrastructure (due to a
wave of privatization as well as cooperative ventures between industry
and government), the government’s position as a provider, coordinator,
or regulator of traditional infrastructure remains intact in most
communities.
19. Classification of Infrastructure Resources
Type Definition Examples
Commercial
Infrastructure
Nonrival or partially (non)rival input
into the production of a wide
variance of private goods
(Non-rivalry means that consumption of a good by one person
does not reduce the amount available for others. Non-rivalry
is one of the key characteristics of a pure public good.)
Basic manufacturing processes
Cable television
The Internet
Road systems
Public Infrastructure Nonrival or partially (non)rival input
into the production of a wide
variance of public goods
Airports, roads, railways
Social Infrastructure Nonrival or partially (non)rival input
into the production of a wide
variance of nonmarket goods
1.Public health care
2.Women health
3. education
20. Types of Infrastructure
Economic Infrastructure
It means those facilities and services
which directly benefit the process of
production, distribution of an
economy, increases efficiency and
stimulates the economic
development of the country
Eg: Roads, railways,
telecommunication systems,
waterways, airways, financial
institutions, electricity, water supply
etc
Social Infrastructure
• It means those basic activities and
services which supports the
economic system indirectly
increases the efficiency of human
capital and supports social
development
• Serves as a support sysytem
• Eg: literacy programmes,
education, public health, housing,
drinking water and sanitation,
banking, technology etc.
21. Characteristics
of
infrastructure
• The Rangarajan Commission indicated six
characteristics of infrastructure sectors
• Natural monopoly
• High-sunk costs
• Non-tradability of output
• Non-rivals (up to congestion limits) in
consumption
• Possibility of price Exclusion
• Bestowing externalities on society
22. Characteristics of infrastructure
Lumpy with large Upfront costs
• Investment is huge and lumpy
• Eg: for an average $ 1 million per megawatt of capacity of power, a
4000 MW coal based power project in India may cost up to$ 4 Billion.
The time period is 3-4 years
• The average cost of building four-lane highways at Rs 8-9 crore per
km and six-lane highways at around Rs 14 crore per km, inclusive of
land costs.
23. Characteristics of infrastructure
• High sunk costs and natural monopoly
Infrastructure investments are generally sunk.
Eg: investment in the networks of piped gas supply, water supply
transmission lines are irrecoverable
They cause a natural monopoly (A natural monopoly exists in a particular
market if a single firm can serve that market at a lower cost than any
combination of two or more firms are created .)
Gas network.
Electricity grid.
Railway infrastructure.
National fiber-optic broadband network
24. Characteristics of infrastructure
Long gestation period:
• The period between the start of an investment project and the time when
production using it can start
Projects take a long period to complete usually 3-9 yrs
Eg: Green field coal project takes around 5 years to complete
Rail project also takes 5 -7 yrs to complete
Long payback periods:
Because of long gestation periods, capital investments have a long payback
period usually up to 30 yrs
25. Characteristics of infrastructure
• Natural Monopoly
• Public Planning is an important aspect as it should augment the
growth and development of the economy
• Non-traceability of output
• Large externalities
(An externality is a cost or benefit caused by a producer that is not
financially incurred or received by that producer. An externality can be
both positive or negative and can stem from either the production or
consumption of a good or service.)
Infrastructure assets are generally associated with significant positive
and negative. Eg:Higher pollution may occur due road expansion (-) at
the same time a lot of housing development will come through roads in
that area( +)
26. Characteristics of infrastructure
• Interconnected System
Infrastructure assets form interconnected networks and have cross-
cutting effects. Eg: The unstable power supply can severely affect
transport modes dependent on electricity like the metro rail network
28. • “Expanding investment in infrastructure
can play an important counter-cyclical
role. Projects and programs to be reviewed
in the area of infrastructure development,
including pure public-private
partnerships, to ensure that their
implementation is expedited and does not
suffer from [the] fund crunch.”
29.
30. Infrastructure and Economic Development
• There is a positive correlation between infrastructure and economic
growth and poverty alleviation.
• A 1% increase in telephone lines per worker is estimated to be
associated with a growth of 0.19 percent points.
• India plans to spend US$ 1.4 trillion on infrastructure during 2019-23
to have a sustainable development of the country.
• The Government has suggested an investment of Rs. 5,000,000 crore
(US$ 750 billion) for railways infrastructure from 2018-30.
31. Role of Infrastructure in development
• Contribution to National Income
• Employment generation
• Urbanisation
• Attract FDI, PP initiates
• Capital Formation
• Rural development
• Entrepreneurship
32. Economic
development
Institutions
Appropriate infrastructure
Stable macroeconomic framework
Good health and primary education
Efficient good markets
Efficient labor markets
Developed financial markets
Ability to harness existing technology
Market size both existing and domestic
Production of new and different goods using sophisticated technology
Innovation
33. India Vs China in infrastructure development
• India wanted to invest about I trillion $ in infrastructure, mainly in power, telecommunication,
roads, railways, and oil pipelines, in the five years ending March 2017.
• India will need to spend more than $1 trillion on infrastructure from 2010 to 2019, with roads
requiring $427 billion, power $288 billion and railways $281 billion, according to Goldman Sachs.
• 7.5 percent of GDP is invested in infrastructure, with plans to increase that to about 10 percent at
the end of the 2008-2012 five-year plan.
• Private investment is likely to contribute 36 percent to total infrastructure investment by 2008-
2012 five-year plan, up from 25 percent from the 2002-2007 period India will issue tax-free
infrastructure bonds with a minimum tenure of 10 years, which will have the potential to raise
about $6.5 billion in fiscal year 2010/11
China's Infrastructure
• China spends 11% of its GDP on infrastructure.
• Spending on infrastructure has been increasing at rate of around 25 percent a year in recent years.
• 38% of China's huge 2008-9 economic stimulus package will go towards public infrastructure
projects, including railway, road, irrigation, and airport construction.
• China budgeted 80 billion yuan (US$11.8 billion) on transportation infrastructure in 2010.
• 170 new mass-transit systems could be built in China by 2025.
34. 9%
24%
6%
3%
3%
2%
1%
1%
0%
1%
50%
Sector-wise investment
anticipated in the Twelfth Five
year Plan Rs Crore
Electricity
Roads & Highways
Telecommunications
Railways(incl MRTS)
Irrigation(incl
watershed)
Water supply &
sanitation
Ports
Airports
Storage
Gas
Total
Sector-wise investment anticipated in the Twelfth Five-
year Plan
Sectors Rs Crore Share%
Electricity 1501666 18.466404
Roads & Highways 3914536 48.1381368
Telecommunications 943899 11.6073883
Railways(incl MRTS) 519221 6.3850049
Irrigation(incl watershed) 504371 6.20239032
Water supply & sanitation 255319 3.13972868
Ports 197781 2.43216791
Airports 87714 1.07864343
Storage 58441 0.71866521
Gas 148933 1.83147048
Total 8131881 100
35. Twelfth Five-year plan: on Weak
economy, Infrastructure
investment to decline sharply
• Overall investment in the infrastructure
sector is projected to fall sharply during the
Twelfth Five Year Plan (2012-17) due to the
slowdown in the economy during these years
and financing challenges faced by companies,
according to an appraisal report of the Plan
released by the Niti Aayog
• As against the earlier projection of Rs 55.74
lakh crore of total investment in the sector
during 2012-2017, the projection has now
been revised to Rs 37.24 lakh crore or about
67 per cent of the original Plan projections
36.
37.
38.
39. Barriers to Infrastructure in India
To achieve seamless working and productivity in other business sectors and India's
ambitious goal to be a USD 5 trillion economy by 2025, strong infrastructure growth is
essential
It is found that the top five barriers are
1. Insufficient funding
2. Improper identification of projects and shelving of projects
3. Project development but no maintenance
4. Cost overrun and Time overrun
5. Corruption
6. Inflation
7. Difficulty in survey and design during the construction process (Capacity building)
8. Weak support from the economy
40. Challenges associated with provision of
Infrastructure
• Poor maintenance: it is estimated that 1 $ spent
on roads saves $ 4 on rehabilitation
• Fiscal Drain – High subsidies due to low user
charges and inefficiency. Prices are often held
well below the costs in the name of poor and
every one gets the benefit of the service.
• Unresponsiveness to user demand – Poor
Quality of publicly provided infrastructure:
MTNL and BSNL. Inefficiency and poor
maintenance lead to low quality and unreliable
services alienating users.
41. Challenges associated with provision of
Infrastructure
• Time and Cost overrun There are political economy reasons for starting a large
number of projects which get allocated a limited amount of funds in the annual
budget cycle leading to massive time.
• Limited resources are often spent on wrong projects: instead of rationality, it
was because of political economy. Bullet train built between Ahmedabad and
Mumbai has a massive aid
• Many projects are over-engineered which lead to inefficiency in the deployment
of resources.
• T3 terminal of delhi International Airport limited has large excess capacity which
results in DIAL as the most expensive airport in terms of user fees and aircraft
landing charges.
• Gurgoan –Jaipur Highway – cost and time overrun – 90 flyover over like structure
in 250 km length
42. Way Forward- National Infrastructure
Pipeline (NIP)
• The government recently announced1.02 trillion infrastructure
spending plan for the next five years, from 2019-20 to 2024-25.
• The National Infrastructure Pipeline (NIP) captures the
infrastructure vision of the country for the period FY20-25 and is
the first-ever such exercise undertaken.
• To achieve the vision of making India a $5 trillion economy
by 2024-25, India needs to spend about $1.4 trillion over these
years on infrastructure.
43. National Infrastructure Pipeline (NIP)NIP)
• The National Infrastructure Pipeline (NIP) for FY 2019-25 is a first-of-its-kind, whole-of-government exercise
to provide world-class infrastructure to citizens and improve their quality of life.
• It aims to improve project preparation and attract investments into infrastructure.
• A High-Level Task Force was constituted under the chairmanship of the Secretary, Department of Economic
Affairs (DEA) &Ministry of Finance.
• The NIP was created by combining information from multiple stakeholders, including line ministries,
departments, state governments, and the business sector, in accordance with the Harmonised Master List of
Infrastructure.
• All projects (Greenfield or Brownfield, under conceptualization or under implementation or under
Development) of project cost greater than Rs. 100 crore per project were sought to be captured.
44. Way Forward- National Infrastructure
Pipeline (NIP)
• Objectives:
NIP is expected to enable well-prepared infrastructure projects which
will create jobs, improve ease of living, and provide equitable access to
infrastructure for all, thereby making growth more inclusive.
• NIP intends to facilitate supply-side interventions in infrastructure
development to boost short-term as well as potential GDP growth.
• Improved infrastructure capacities will also drive the competitiveness
of the Indian economy.
45. Way Forward- National Infrastructure
Pipeline (NIP)
• Scope of the project: The infrastructure
investment is distributed between Energy (24
percent), Roads (19 percent), Urban (16
percent), and Railways (13 percent),
amounting to over 70 percent of the total
projected capital expenditure.
• Remaining 30 percent will go
into irrigation, agriculture, rural and
social infrastructure.
• Status of the project: Around 42% of NIP
projects are now under
implementation while 31% are at the
conceptualization stage.
• It is estimated that India would need to
spend $4.5 trillion on infrastructure by
2030 to sustain its growth rate.
24%
19%
16%
13%
30%
Scope of the NIP project Distribution
Energy
Roads
Urban
Railways
Irrigation, agri, rural & socaila infra.
46. Various government departments for
infrastructure development in India
Under the Department of Economic Affairs (DEA) we have
• Infrastructure Policy cell
• Infrastructure financing
• PPP cell
• Energy cell
47. (a) Infrastructure (Policy) Cell
• All policy related issues in infrastructure sector including those concerning roads, ports, shipping, railways, inland water transport,
urban development, power and telecommunication sector referred to the Department of Economic Affairs (DEA) by the concerned
administrative Ministries or identified and examined by DEA.
• Examination of proposals in above sectors requiring the approval of EFC/PIB/CCEA/COS/CCI for their viability and justification.
• Sectoral Charge – Ministry of Road Transport & Highways, Ministry of Shipping including Ports and Inland Water Transport, Ministry
of Urban Development, Ministry of Railways, Ministry of Civil Aviation, Department of Telecommunication, Department of Post
• All matters relating to Roads projects (PPP and non-PPP) including EFC/SFC/PPPAC and EI/EC under the Government of India VGF
Scheme.
• Matters relating to Delhi Mumbai Industrial Corridor Trust and DMICDC.
• Development of Smart Cities.
• Atal Mission for Rejuvenation & Urban Transformation (AMRUT)
• Institutional Mechanism (IM) for Harmonized Master List of Infrastructure Sub-sectors.
• Telecom Commission
• National Highway Authority of India
• External charge – China, South Korea and North Korea
• India Korea Macro-economic and Financial Dialogue; and
• India – China Financial Dialogue.
Source : https://dea.gov.in/divisionbranch/infrastructure-policy-and-plannin
48. (b) Infrastructure Financing
Functions:
• Matters related to infrastructure financing and promotion of investments in infrastructure sectors.
• Matters relating to Infrastructure Debt Funds (IDFs), Real Estate Investment Trusts (REITs)/Infrastructure
Investment Trust InvITs, Tax Free Bonds, Municipal Bonds and other instruments meant for infrastructure
financing and credit enhancements.
• All international interfaces on infrastructure financing (other than PPPs).
• Model Tripartite Agreements (MTA) for sectors such as Road, Ports, etc.
• External charge- Bahrain, Oman, Saudi Arabia, Qatar, Kuwait, UAE, Yemen, Israel, Jordan and Lebanon.
• Matters relating to Infrastructure and Investment Working Group (IIWG) of G-20.
• India-Saudi Joint Investment Fund, Indo-Israeli R & D Fund.
• Examination of proposals in above sectors requiring the approval of EFC/PIB/CCEA/COS/CCI for their viability
and justification.
• All policy matters relating to Project Monitoring Group (PMG).
• India Saudi Arabia Joint Commission for Technical and Economic Cooperation.
• Matters relating to meetings of Board of Directors of ONGC-Videsh Limited (OVL), IIFCL and IRFC as
Government nominee on the Board of Directors.
• Coordination and general matters pertaining to the Division
49. (c) PUBLIC PRIVATE PARTNERSHIP (PPP) Cell
The Public Private Partnership (PPP) Cell is responsible for matters concerning PPPS, including policy, schemes,
programs and capacity building, and all other matters relating to mainstreaming PPPs.
• Functions:
1. Matters relating to appraisal and approval of Central sector PPP projects, as per the Cabinet approved
“Compendium of Guidelines for Central Sector PPPs” and the Delegation of Powers assigned from time to
time except those in Road Sector.
2. Matters and proposals relating to clearance by Public-Private Partnership Appraisal Committee (PPPAC)
except those in Road Sector.
3. Matters and proposals relating to the scheme for Financial support to PPPs in the Infrastructure Viability Gap
Funding (VGF) Scheme except those in Road Sector.
4. Matters and proposals relating to the scheme for India Infrastructure Project Development Fund (IIPDF).
5. Developing Multi-pronged and innovative interventions and support mechanisms for facilitating PPPs in the
country, including Technical Assistance and programs from bilateral/multilateral agencies on mainstreaming
PPPs and support to State and local governments.
6. Managing training programs, strategies, exposures for capacity building for PPPs and other matters relating
to institution building for mainstreaming PPPs.
7. All International interfaces on PPPs & other matters concerning PPPs.
8. Matters relating to the management of PPP related information,
including www.pppinindia.gov.in and infrastructureindia.gov.in.
50. Classification of Countries
• Countries may be classified as either developed or developing based
on
• the gross domestic product (GDP) or gross national income (GNI) per capita,
• the level of industrialization,
• the general standard of living,
• the amount of technological infrastructure
among several other potential factors.
51. Global
Competitiveness
Index &
Infrastructure
• The Global Competitiveness Measure combines
macroeconomic and micro/business competitiveness into a
single index.
• The report "assesses the ability of countries to provide high
levels of prosperity to their citizens". This in turn depends on
how productively a country uses available resources.
• The Global Competitiveness Report is a yearly report
published by the World Economic forum
• It measures the prosperity and competitiveness of countries
by examining four factors:
• Economic performance
• Government efficiency
• Business efficiency
• Infrastructure
52. Global Competitiveness Index
• It is made up of over 110 variables, of which two-thirds come from the Executive Opinion Survey, and one-third come from publicly available
sources such as the United Nations.
• The variables are organized into twelve pillars, with each pillar representing an area considered as an important determinant of competitiveness.
The report has twelve pillars of competitiveness. These are:
1. Institution
2. Appropriate infrastructure
3. Stable macroeconomic framework
4. Good health and primary education
5. Higher education and training
6. Efficient goods markets
7. Efficient labor markets
8. Developed financial markets
9. Ability to harness existing technology
10.Market size—both domestic and international
11.Production of new and different goods using the most sophisticated production processes
12.Innovation
• One part of the report is the Executive Opinion Survey, which is a survey of a representative sample of business leaders in their respective
countries. Respondent numbers have increased every year and is currently just over 13,500 in 142 countries
53. Global Competitiveness Index
In the factor-driven stage countries compete based on their factor
endowments, primarily unskilled labor and natural resources.
Companies compete on the basis of prices and sell basic products
or commodities, with their low productivity reflected in low wages.
• To maintain competitiveness at this stage of development,
competitiveness hinges mainly on well-functioning public and
private institutions (pillar 1),
• appropriate infrastructure (pillar 2),
• a stable macroeconomic framework (pillar 3),
• and good health and primary education (pillar 4).
54. Global Competitiveness Index
• As wages rise with advancing development, countries move into the
efficiency-driven stage of development, when they must begin to
develop more efficient production processes and increase product
quality.
• At this point, competitiveness becomes increasingly driven by higher
education and training (pillar 5),
• efficient goods markets (pillar 6),
• efficient labor markets (pillar 7),
• developed financial markets (pillar 8),
• the ability to harness the benefits of existing technologies (pillar 9)
• its market size, both domestic and international (pillar 10).
55. Global Competitiveness Index and India
• Among the BRICS nations, India is ranked second after China (16), followed by
Russia (45th), Brazil (57th) and South Africa (62th).
• India has maintained its position for the past three years but this year, it had
significant improvements in government efficiency, IMD said.
• "India's improvements in the government efficiency factor are mostly due to
relatively stable public finances (despite difficulties brought by the pandemic, in
2020 the government deficit stayed at 7 per cent) and to the positive feedbacks we
registered among Indian business executives with respect to the support and
subsidies provided by the government to the private companies," IMD said. (
Business Standard June 18, 2021)
56. Key findings of the World Competitiveness
Rankings 2021:
» Switzerland has topped the IMD’s World
Competitiveness Ranking for the first time in
its 33-year history.
» The UAE and the USA remain at the 9th and
10th spots, respectively, as of last year.
59. Infrastructure Finance
1. Direct Budgetary /dedicated funds from national / state government
(Public)
2. Internal and extrabudgetary resources of public sector undertakings
(quasi-public)
3. Private Investment (private)
4. International funding from donors, multilateral and commercial finance(
quasi-private or private)
60. Direct Budgetary /dedicated funds from national /
state government (Public)
• Government still the key source of infrastructure finance
• It is in the form of dedicated funds
• Fiscal prudence ties the hands of the government in supporting
infrastructure by providing budgetary support
• For example, government’s ability to fund infrastructure directly is
limited by the bounds defined by the Indian Fiscal Responsibility
budget act. The FRBM Act was enacted to introduce a more equitable
distribution of India's debt over the years. The Act’s long-term
objective is for India to achieve fiscal stability and to give the Reserve
Bank of India (RBI) flexibility to deal with inflation in India.
61. • For example dedicated fund for implementation of the NHDP through
levy of cess on diesel which adds upto 43000 crores per annum.
• Govt further leverages this cess revenue through market borrowing
using capital gains tax or other tax-free bonds.
62. Internal and extrabudgetary resources of
public sector undertakings (quasi-public)
The internal resource generation in public sector is low because of low
profitability of PSUs .
There are 235 Central PSU having a cumulative profit and 77 suffering
loss.
The key source of infrastructure finance that augments internal funds is
tolls on the road projects.
63. Private Investment
• Private investment has emerged as a major source of financing
infrastructure in recent in times.
• 22% of 25 billion in the 10th five-year plan
• 38% of 500 billion in the 11th five year plan
• 47 % of 1 trillion in the 12 th five year plan
came from private investment
64. Why Doesn’t the Private Sector Invest In Infrastructure Projects?
• Lack of Project Pipelines
• Lack of Controls
• Lower Adjusted Rate of Return
• Unstable Regulatory Environment
• High Transaction Costs
65. International sources
• International sources like the world bank are major lenders
• World bank has lent $1 billion to IIFCL for infrastructure projects
• The involvement of the world bank in the project is key to attracting
financing for the project from other investors
• Most multilateral are also able to provide specific political risk
insurance and partial risk guarantees
66. Modes of
Financing
Debt financing –international from
world bank or Asian deve bank Domestic
from NHAI, PFC Tax free bonds
Equity Financing
Project finance – The most private
sector is project financed
67. Domestic sources External sources
Equity
Domestic developers (independently or in collaboration
with international developers)
Public utilities (taking minority holdings)
Other institutional investors (likely to be very limited)
International developers (independently or in
collaboration with domestic developers)
Equipment suppliers (in collaboration with domestic or
international developers)
Dedicated infrastructure funds
Other international equity investors
Multilateral agencies (International Finance Corporation,
Asian Development Bank)
Debt
Domestic commercial banks (3-5 years)
Domestic term lending institutions (7-10 years)
Domestic bond markets (7-10 years)
Specialized infrastructure financing institutions
International commercial banks (7-10 years)
Export credit agencies (7-10 years)
International bond markets (10-30 years)
Multilateral agencies (15-20 years)
Bilateral aid agencies
