India Infrastructure Report Q1 2010

This quarter BMI has introduced a new data series for infrastructure and its subsectors (transport and energy & utilities). This is an effort to address a significant deficiency in the availability of globally comparable, infrastructure-specific indicators and forecasts across a wide range of countries. The report’s new infrastructure data series enables users to quantify trends and growth patterns in the infrastructure sectors of the 35 main emerging and developed markets out of the 62 countries in BMI's infrastructure service.

In the Q110 India Infrastructure Report we are forecasting India’s construction industry to post only minimal growth of 0.98% y-o-y in 2009/10. However, taking into account the new data breakdown, we see far more potential in the infrastructure sector for the financial year, when we are anticipating it to register 8.98% growth y-o-y. This figure far better represents the level of activity that we have seen recorded on the ground in both the transport and utilities industry over the last quarter and 2009 in general.

India’s Infrastructure Output Index, a measure of output growth from six industries related to infrastructure production, has shown resilience thus far in 2009 and according to the latest available data from August 2009, production increased by 7.1% year-on-year (y-o-y), the strongest month yet. This confirms BMI’s optimism for the infrastructure industry value in 2009/10 and presents further upside potential for the financial year.

According to the new data breakdown, transport will contribute the vast majority of infrastructure industry value, 73%, in 2009/10, equal to INR1.69trn (US$35.53bn). The road and ports sectors have seen the most activity over the past quarter, with a number of contracts awarded as both EPC and concessions.

International activity has been seen most prominently in the port sector.

While the utilities infrastructure industry has contributed far less than the transport sector historically, the industry value will average real growth of 12% y-o-y between 2009/10 and 2014/15. This reflects two major plans to build up electricity capacity in the country announced by the government over the past quarter. In August, Prime Minister Manmohan Singh pushed forward with the Solar Mission, a plan to generate 20GW of electricity from solar power by 2020, expanding to 200GW by 2030 and 300GW by 2050. While ambitious, progress has been made on the 3,000MW Gujarat Solar Power plant, with the Clinton Foundation signing an MoU to participate in the project in August 2009, adding some weight to the plans.

The other plan announced to build up electricity generating capacity focuses on nuclear power and indicates the rapid pace with which the market will grow over coming years. In October Prime Minister Singh announced a strategy to develop up to 470GW of nuclear power by 2050, a more than 11,000% capacity increase from current levels. The news reiterates India’s prominence as a growing market for nuclear power and its attractiveness to international nuclear majors vying to get a foothold in the market.

On the whole, India’s infrastructure sector has been defined by the same trends over the past quarter as have long been the case. Almost limitless opportunities for development of infrastructure have been marred by the recurring issues with cumbersome, incoherent and inconsistent bureaucracy, issues with transparency and competitiveness, and unclear regulations. All of this means that while opportunities are plenty there are risks that potential investors need to heed.