2

Evolution of Infrastructure

Development & Into the

Future

Dr Sambit Basu

Pune

November 2013

3

Infrastructure Development: Context

◾ Infrastructure critical for economic growth and development

– strong positive externalities & economies of scale, improves productivity & livelihood,

facilitates sustainable development

◾ What makes infrastructure unique?

– Natural monopoly with public good characteristics, high sunk costs and non-rivalry in

consumption

◾ Infrastructure broadly includes

– road, electric power, communication network, ports, airports, etc

– but may evolve to include social and institutional infra

◾ What comprises infrastructure is ‘not fixed’ and evolves over time

– Till 4th Plan irrigation was included in infrastructure but since considered in agriculture

◾ Infrastructure development is closely linked with political histories

◾ India’s infrastructure development so far and into the future could be viewed in

the wider context of the evolution of the country’s political economy

4

India’s GDP has risen steadily since Independence

0.0

10000.0

20000.0

30000.0

40000.0

50000.0

60000.0 GDP at Factor cost (Rs Billion)

GDP at Factor cost (Rs Billion)

3.3%

3.9%5.6%

5.6%

5.7%

7.6%

8.0%

5.0%

Recorded an average 9.46%

growth in 2005-08

Source: RBI, Handbook of Statistics (2012-13)

5

Volatility in GDP growth declined over the last 2 decades

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

60

-61

62

-63

64

-65

66

-67

68

-69

70

-71

72

-73

74

-75

76

-77

78

-79

80

-81

82

-83

84

-85

86

-87

88

-89

90

-91

92

-93

94

-95

96

-97

98

-99

00

-01

02

-03

04

-05

06

-07

08

-09

10

-11

12

-13

10 Year Mean

10 Year Volatility

Source: RBI, Handbook of Statistics (2012-13)

Perc

ent

6

Growth in initial years more vulnerable to external shocks

3.6%

4.2%

2.8%

3.9%

3.3%

4.7%

0.01%

5.5% 5.6%

3.3%

6.5%

5.7%

7.6%8.0%

5.0%

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.091

95

0-5

1

19

55

-56

19

60

-61

19

65

-66

19

68

-69

19

73

-74

19

77

-78

19

79

-80

19

84

-85

19

89

-90

19

91

-92

19

96

-97

20

01

-02

20

06

-07

20

11

-12

20

12

-13

Shocks affecting GDP also cut short and pulled down infrastructure spend, which in turn moderated growth in ensuing years

’57-58 Foreign Exchange Crisis

’64 Nehru’s death

’65 Pakistan

War

’67-68 drought

’71 Bangladesh

war

‘73-74 oil shock

’77 political

crisis

‘79-80 oil shock

‘84 IndiraGandhi

assassinated

‘91 Irajiv Gandhi assassinated &

IMF Crisis

7

Phases of infrastructure development

3.64.2

5.9 6

7.9

9.3 9.3

4.4 4.1

5.24.5 4.8

5.4 5.7

0

1

2

3

4

5

6

7

8

9

10

1950-67 1967-84 1984-91 1991-04 2004-05 2005-06 2006-07

Growth of GDP Infra Inv to GDP ratio

Ph - I Ph - II Ph - III Ph - IV Ph - V

6

7.9

9.3 9.39.8

3.9

8.5

10.5

6.3

4.5 4.85.4 5.7

6.2

7.36.8

8.37.3

0

2

4

6

8

10

12

Growth of GDP Infra Inv to GDP ratio

Ph - IV Ph - V

• Phase I (1950-67) & Phase II (1967-84): Run in infra spend, but cut short with external shocks, but picked up again as GDP growth picked up• Phase III (1984-91): Infra failed to pick-up pace despite real GDP rates accelerated • Phase IV (1991-05): Infra spend moderately picking up after mid 1990’s, sans high telecom FDI flow & govt spend on NH 4 laning program, but did not keep pace with the sharply accelerating GDP growth.• Phase V: Pattern of Phase IV continued, which could be explained by the structural reform driven growth of the GDP much stronger than the impact of infra spend • Infra constraints are faced since 2011-12, and sustained GDP growth is a challenge without infra build-up

8

Source: Rajiv Lall and Anupam Rastogi (2007)

Political Focus Policy Focus Macro Management

Phase I -

1950-67

Fabian Socialist Industrialisation, pro-public sector,

Central Govt bias, centralised

planning

Fiscal conservatism, foreign

exchange controls

Phase II -

1967-84

Rhetorical Socialist

with anti-urban bias

tending to populism

Food security, reduce unemployment,

raise percapita income, anti-private

sector, banks nationalised, import

substitution – tariff & non-tariff

barriers

Fiscal conservatism – hawkish

on inflation, despite

politicisation of fiscal policy

(subsidies, public &

government spending, loan

mela)

Phase III -

1984-91

Populist Industrial de-licensing and

deregulation, technological

modernisation

Fiscal profligacy and debt

monetisation –unproductive

spending a legacy from

previous phase, high CAD; led

to 1991 economic crisis

Phase IV -

1991 onwards

Neo-populist

(Coalition based)

Structural economic reforms to

address crisis, globalisation.

Politically easier reforms - trade

regime liberalised, investment rules

simplified , currency devalued, capital

market & investment relaxed

Fiscal consolidation,

Infra build-up phases find construct in political-economy

9

Source: Rajiv Lall and Anupam Rastogi (2007)

Infra Focus

Phase I -1950-67 •Major multi-purpose irrigation – Bhakra Nangal, Hirakud, Chambal, Tungabhadra,

Nagarjunasagar, DVC; to address food crisis,

•power & roads to facilitate industrial development,

•rehabilitation of critical assets.

•Infrastructure treated as anciliary & main focus on centralised planning

Phase II -1967-84 •Infra with village focus – rural roads, village electrification facilitating minor & groundwater

irrigation.

•REC was set up to provide loans to SEBs. NTPC set up in 1975. Subsidised electricity to

agriculture and distortionary tariff structure with industry cross subsidizing agriculture & residential.

•National highways added to road network & rural road sector attracted attention with govt funds

chanellised through special poverty alleviation schemes. Scheme implementation was poor,

resulting in poor quality roads.

•Other infra sectors remained largely neglected; telecom sector neglected as considered luxury

•Infrastructure was not part of strategic thinking

Phase III -1984-91 • Telecommunication assumed high importance & Centre for Development of Telematics

established on 1987. However all investments remained in public sector

•Growing use of digital technology & linkages with computers and advent of satellite reduced

telecom costs and ushered in a new era

•This phase sown the seeds for restructuring of telecom sector

•Power sector spend continued, despite deteriorating financial condition on SEBs and wasteful

government spending

•Transportation and Urban infra remained neglected due to fiscal constraints posed by power

sector and other revenue expenditures

Phase IV -1991-04 • Fiscal constraints and consolidation for almost decade and half, sans spurt of FDI flow in

telecom (1994-95) and govt support for 4 lanning of national highways (2001-02)

• Seeds for ushering in private sector in infrastructure, burdened by wasteful public spending

Infra focus in phases of development

10

Infrastructure build-up during pre-reform phases

Rise in minor irrigation Village electrification

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Major & Medium

Minor

Millio

n H

a

3061 729421754

45148

156729

232770

370332

470838

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

1950

1956

1961

1966

1974

1979

1985

1990

11

Infrastructure build-up

Progress of Road Network Installed electricity generation capacity

20 24 24 32 34 58206 197

355

629

1,260

1,972

0

500

1,000

1,500

2,000

2,500

1951 1961 1971 1981 1991 2001

National Highways

Rural Roads

State Highways & Other PWD Roads

'00

0 k

ms

1.7

4.6

14.7

30.3

35.4

39.4

42.6

0

5

10

15

20

25

30

35

40

45

1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2010-11

Gen Installed capacity (GW)

In 1971 only 24000kms were

NH of total 915000km road

network

12

New era of reform - sharp rise in teledensity

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

1951

1961

1971

1981

1991

2001

2005

13

Source: RBI, Handbook of Statistics (2012-13)

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.001

99

0-9

1

19

91

-92

19

92

-93

19

93

-94

19

94

-95

19

95

-96

19

96

-97

19

97

-98

19

98

-99

19

99

-20

00

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

11

-12

Fiscal Deficit

Current Account Balance

Pe

r ce

nt

Seventh Plan ended in financial crisis ………..

Fiscal Deficit (Centre & state) & Current Account Balance as percent of GDP

14

……Not so productive Government Expenditure rising

Rising revenue expn & declining capital

exp

Rising share of Govt subsidy in GDP

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

Percent Share in GDP

Central Govt Expn Central Govt Cap Expn

Central Govt Rev Expn Central Govt non-plan Rev Expn

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1970

-71

1973

-74

1976

-77

1979

-80

1982

-83

1985

-86

1988

-89

1991

-92

1994

-95

1997

-98

2000

-01

2003

-04

2006

-07

2009

-10

2012

-13

Pe

r c

en

t

15

Compelling situation for facilitating Private Sector Investment

◾ Government spending wasteful; slow down in investment on productive assets

◾ Government resource crunch, creates an urgency to attract private investment in

productive assets

◾ Structural reforms introduced an enabling environment for private participation

◾ Initial efforts at attracting private participation yielded positive results – the

telecom experience and the IT boom that ensued

◾ Infrastructure development takes a strategic approach; recognition to sustain

development

16

Reforms

Under pricing of services out of political interest

Poor fiscal health of Governments leading to underinvestment

High cost and poor performance

Vested Interests

Bureaucratic decision making leading to delays

Inadequate compensation to attract talent

Competitive restructuring

Privatization / Public Private Partnerships

Regulatory Reforms

Infrastructure

traditionally provided by

Government controlled

monopolies

Infrastructure reforms

driven by

Realization of fiscal shortfall

Rapid advances in technology

Advances in economic thinking

Mounting evidence of high cost of Government intervention

Infrastructure reforms driven by legacy issues

17

Efficiency

Competition - benefits consumers

Capital Availability

Quality of service

Improved accountability

Scarce government resources

chanellized to meet other social

commitments

For the Government

• Infrastructure

services essentially

monopolistic in

nature

• Outright privatization

- not good public

policy

• Efficiency vs. Equity

• Regulation

PPP is a solution where outright privatisation may face political resistance –

combines benefits of private sector and public policy concern of Government

Benefits of Private Participation Challenges

For the Private Sector

High up-front costs,

late returns on

investment

High multi-faceted

risks and uncertainty

Limited access to

financial markets

Infrastructure reforms driven by legacy issues

18

Interests of different stakeholders involved in PPP

Government

Ensure growth of the sector,

formulate effective public policy Private Sector

Returns maximisation

Regulator

Ensure transparency,

balance the interests of

different stakeholders

Consumer

Value for Money

Conflicting interests

of the different

stakeholders

19

Role of the Government

Government to step away as operator, restricting itself to policy formulation;

create independent facilitator / regulator

20

Key steps taken to attract private sector in infrastructure

Simply opening up infrastructure sector for private participation not adequate

Independent regulatory and clear policy frameworks - a necessity

21

What ensued was a steady rise in private investment in infrastructure

4.8 4.8 4.85.4

5.76.2

7.36.8

8.3

7.3

4.0 3.93.6

3.9 4.14.3

4.84.5 4.6

4.3

0.8 0.91.2

1.5 1.71.9

2.52.2

3.7

2.9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Ratio of Investment in Infrastructure to GDP Ratio of Public Investment in Infrastructure to GDP

Ratio of Private Investment in Infrastructure to GDP

Pe

r c

en

t

Source: Interim Report of the High Level Expert Committee on Financing Infrastructure (2012)

• Infrastructure spending has grown from only about 5% of GDP in 2003 to 7.3% of GDP in 2012 • In order to sustain growth targets, this would need to increase further to nearly 9% of GDP by 2017

22

Private corporate contribution to GDCF as percent of GDP rose sharply

4.15%4.27%

5.87%

6.63%

5.80%

7.13%

9.92%

8.41%8.38%

6.73%6.99%

4.91%5.16%

5.73%6.56%

10.33%

13.56%14.53%

17.31%

11.30%

12.71%

12.10%12.35%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

GDCF, Public

GDCF, Private corporate

Central govt. expenditure

Source: Planning Commission

23

Significant achievements over the last decade

24

Generation Capacity installed in Power Sector

◾ Total Power Generating Capacity has grown from about 123,000 MW in 2003 to 225,000

MW today

◾ Private sector at 71,088MW currently constitutes 31 percent of the total installed

capacity of 225,000 MW, up from single digit levels in 2004

◾ Renewable Energy generation has gained momentum:

– Of the 27,500 MW Renewable Capacity in the country, nearly 21,000 MW has been added since

2008, higher than any prior period

25

Unprecedented growth in mobile connections over past decade

◾ Cellular tariffs have decreased from over Rs. 7 per minute in 2000 to about 50 paise per

minute today.

◾ Overall teledensity has increased from 5 percent in 2003 to 73 percent today. Rural

teledensity has increased from less than 1 percent in 2003 to nearly 40 percent today

26

Road network have grown under NHDP

◾ National highways comprise 79243 kms of the total road length of 33 lakh kms

◾ Expressways constitute 200 kms, while rural & district roads cover 31 lakh kms

◾ The Pradhan Mantri Gram Sadak Yojana has been used by Govt to add/upgrade 3 lakh km

of all weather roads since 2004

◾ Only 2% of the Indian roads carry 40% of traffic

◾ Significant road length added under the NHDP, but have been falling short of targets

27

National Highways – Significant increase in Concessions Awarded (km)

Sources: Ministry of Road Transport and Highways (MORTH); Planning Commission

Note: * Projected Targets as per MORTH

2351

754 6361683

22032693

17802500

1305 4740

1726

1234 638

3360 5059

7995

0

2000

4000

6000

8000

10000

12000

Contracts / Concessions awarded Road length complete

28

Sector-wise Proportion of Private and Public Investment in Infrastructure (Per cent)

Sectors

Tenth Plan Eleventh Plan Twelfth Plan

Public Private Public Private Public Private

Electricity 59.8 40.2 52.2 47.8 47.4 52.6

Roads & Bridges 92.7 7.3 80.0 20.0 68.0 32.0

Telecommunications 47.3 52.7 20.4 79.6 12.2 87.8

Railways 99.3 0.7 94.1 5.9 78.2 21.8

Irrigation 100.0 0.0 100.0 0.0 100.0 0.0

Water Supply & Sanitation 98.3 1.7 99.5 0.5 97.6 2.4

Ports 20.3 79.7 16.7 83.3 13.5 86.5

Airports 65.6 34.4 36.3 63.7 20.4 79.6

Oil & Gas Pipelines 96.9 3.1 58.2 41.8 53.3 46.7

Storage 62.7 37.3 44.9 55.1 28.5 71.5

Total Investment 75.5 24.5 62.5 37.5 53.3 46.7

Private investment is yet to pick-up momentum in some key sectors

29

Investments in some sectors fall short of targets in 10th & 11th Plan

Source: Mid-Term Appraisal for Eleventh Five Year Plan (2011); Interim Report of the High Level Expert Committee on Financing

Infrastructure (2012)

0

1,00,000

2,00,000

3,00,000

4,00,000

5,00,000

6,00,000

Tenth Plan (Projection)

Tenth Plan (Actual)

Rs. C

rore

0

1,00,000

2,00,000

3,00,000

4,00,000

5,00,000

6,00,000

7,00,000

8,00,000

9,00,000

10,00,000

Eleventh Plan (Projection)

Eleventh Plan (Actual)

Rs. C

rore

30

Huge investment in infrastructure projected for 12th Plan period

• Rs 51 lakh Cr is estimated as the requirement for infra development over 12th Plan,

which is double that of the 11th Plan

• The share of private sector is expected to rise to 47% against 38% in 11th Plan

• Significant investments are projected for renewable energy, ports & storage

• Private sector is considered key to drive infra development

Projected investment in infrastructure (Rs ‘000 Cr in 2011-12 prices)

Projection for private sector in investment

31

Private sector expected to drive 12th plan is critical in the context

of the prevailing challenges impeding investment & development

◾ Riding the high tide for nearly a decade, despite the global financial crisis triggered

by the ‘sub-prime crisis’ and the sector slowing down only for a year, severe

challenges are now looming large on future projected & sustainable growth

◾ Investment gaps may not appear large, but large gap in physical achievement in

many sectors is a major concern

◾ Challenges are sector specific, but the key generic challenges are:

◾ Land-related (i.e. acquisition, compensation, etc)

◾ Environment-related

◾ Project implementation

◾ Lack of clarity or absence of appropriate regulations and policies

◾ Financeability of projects bigger challenge than finance

◾ Resource challenge – natural & skilled personnel

◾ Labour-related

32

Successful private participation or PPP in infrastructure require

33

Emergence of inclusive & equitable growth mandates Govt to

attract greater private investment in infrastructure

◾ Telecom revolution has democratised digital access and communication compelling government step-up social spending

◾ Govt spending on programs like MGREGS, food security and mid-day meals shall continue to grow to address equity aspects

◾ Allocating greater share of revenue towards supporting minimum consumption levels will not allow Govt to drive economic growth

◾ Infrastructure build-up needed to sustain high growth (so very necessary for inclusive development), Govt has to attract greater private spending on infrastructure

◾ Emerging political economy of infrastructure development would require infrastructure to be more inclusive – rapidly building much neglected rural infrastructure and also include social infratsructure

34

Population of India (2001 & 2011)

Rural Urban Total

2001

742,490,639

(72%)

286,119,689

(28%) 1,028,610,328

2011

833,463,448

(69%)

377,106,125

(31%) 1,210,569,573

Sources: Census of India (2001; 2011)

Large rural population, despite rise in urban population

35

32

49

6268

8682

103 104

0

20

40

60

80

100

120

Pe

rce

nt

Gross enrolment ratio in elementary educationRural literacy

Rural poverty head count ratio Rural consumption growth

45

59

68

31

46

58

0

10

20

30

40

50

60

70

80

1991 2001 2011

Pe

rce

nt

Total literacy Female literacy

Period

1993-94

to 2004-

05

2004-05

to 2009-

10

2009-10

to 2011-

12

Growth

(% p.a.) 1.31 1.78 5.53

Sources: NSSO press release dated 1st August 2012; Authors’

estimates; NSS unit-level data from Household Consumption

Expenditure Surveys (49th, 61st & 66th Rounds)

10

20

30

40

50

60

70

1980 1985 1990 1995 2000 2005 2010

Po

ve

rty r

atio

Sources: NSS unit-level data from Household Consumption

Expenditure Surveys (38th, 43rd, 49th, 55th, 61st & 66th Rounds)

Purchasing power and literacy in rural India are increasing…

36

... and village connectivity is improving

56

65

0

20

40

60

2000 2012

Pe

rce

nt

Share of rural habitations connected by road

74

95

0

20

40

60

80

100

2005 2013

Pe

rce

nt

Rural teledensity

Share of villages electrified

32

45

5962

0

20

40

60

80

2010 2011 2012 End June 2012

Pe

rce

nt

Share of village panchayats covered by broadband

services

0

10

20

30

40

50

Pe

rce

nt

Source: PMGSY website

Source: Performance Indicators Reports (various years), TRAI

Source: Central Electricity Authority (CEA)

Source: Rajya Sabha unstarred question no. 1462, dated 24.08.12

37

Basic Infrastructure is missing in rural areasDistribution of rural households by three facilities:

drinking water within premises, latrine and electricity for domestic use

6 1118

43

30

20

0

10

20

30

40

50

49th Round (1992-93)

58th Round (2001-02)

65th Round (2008-09)

Pe

rce

nt

All three facilities None of these

58

13

18

39

18

35

27

21

14

8

20

0

10

20

30

40

0-20 20-40 40-60 60-80 80-100 All

Pe

rce

nt

Quintile class

All three facilities None of the facilities

27

33

17

11

20

10

9

17

33

18

0 10 20 30 40

ST

SC

OBC

Others

All

Percent

All three facilities None of the facilities

Source: NSS 65th Round, 2008-09

Note: NSS 65th and 58th Rounds gives data on households with exclusive and shared latrine use whereas NSS 49th Round presents data on households with

latrine facilities within premises.

38

Central Government Spending on Rural Infrastructure (2000–12) (2006–07 prices)

Total expenditure (Rs.

Crore) Share (%)

Rural roads 90,517 29.8

Rural housing 48,511 16

Irrigation 48,184 15.9

Watershed 10,557 3.5

Rural drinking water and sanitation 62,342 20.5

Rural electrification 24,100 7.9

Telecommunication 13,851 4.6

Storage 1,972 0.6

PURA 206 0.1

Integrated Action Plan (IAP) 3,654 1.2

Actual expenditure on rural infrastructure 303,894 100.0

Source: IRDR (2012-13)

Government spend on rural infrastructure inadequate

39

Population Below Poverty Line (in Lakh and %)

Rural Urban Total

2004-05 3,258 (41.8) 814 (25.7) 4,072 (37.2)

2009-10 2,782 (33.8) 765 (20.9) 3,547 (29.8)

2011-12 2,167 (25.7) 531 (13.7) 2,698 (21.9)

Sources: Press Note on Poverty Estimates, Planning Commission (2010; 2013)

Rising income & aspirations of the poor in rural & urban

40

Distribution of Rural Population by Age-group (Per cent)

Below 10 10-19 20-29 30-39 40-49 50-59 60 & above All

Rural Male

1993-94 26.1 22.2 15.5 13.2 9.5 6.7 6.8 100.0

1999-00 25.4 22.7 15.2 13.2 9.9 6.5 7.0 100.0

2004-05 23.7 22.8 15.2 13.4 10.8 6.8 7.1 100.0

2009-10 21.0 23.3 15.1 14.0 11.5 7.5 7.7 100.0

Rural Female

1993-94 25.3 19.7 17.6 13.6 10.0 6.9 6.9 100.0

1999-00 24.8 20.5 17.0 14.2 9.6 6.6 7.2 100.0

2004-05 23.0 20.4 16.7 15.2 10.4 6.8 7.5 100.0

2009-10 20.1 20.2 17.2 15.6 11.4 7.5 8.1 100.0

Source: NSS 66th Round, Report No. 537, Employment and Unemployment Situation in India, 2009-10

Large young population entering workforce ………

Distribution of Urban Population by Age-group (Per cent)

Below 10 10-19 20-29 30-39 40-49 50-59 60 & above All

Urban Male

1993-94 21.7 22.7 18.0 14.7 11.0 6.4 5.5 100.0

1999-00 20.2 22.6 18.1 14.9 11.7 6.6 5.8 100.0

2004-05 18.3 21.3 19.1 15.3 12.1 7.3 6.4 100.0

2009-10 16.8 21.0 18.7 15.8 12.6 7.8 7.3 100.0

Urban Female

1993-94 21.7 21.7 18.8 15.1 9.9 6.4 6.4 100.0

1999-00 20.1 21.6 18.4 15.9 10.6 6.3 7.0 100.0

2004-05 18.0 20.6 18.6 16.2 12.0 7.3 7.6 100.0

2009-10 16.1 18.9 19.3 17.0 12.6 7.4 8.6 100.0

41

5.91

6.76 6.89 6.79 6.89 7.09

2.592.88 3.04 3.13 3.25 3.31

1.27 1.32 1.36 1.29 1.29 1.36

0

1

2

3

4

5

6

7

8

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

Expenditure on Social Services Expenditure on Education

Expenditure on Health Expenditure on Others

Pe

r c

en

t

Spending on Social Services as share of GDP

Source: Economic Survey of India (2012-13)c

..……would demand greater social spending

42

Source: Rajiv Lall, Business Standard, 6 Nov 2013

India face pressure for higher social spending at lower level of

development

43

Household Incomes will accelerate across India

43

0

100

200

300

400

500

1985 1990 1995 2000 2005 2010 2015 2020 2025

Rural

Urban5.8%

3.6%

All India5.3%

4.6%

2.8%

3.6%

Actual Forecast

1985-2005

2005-2025

Compound annual growth rates

Average household disposable income

Thousand; Indian rupees; 2000

Source: McKinsey Global Institute

44

Number of households

Million

Household income brackets

Thousand, Indian rupees, 2000

Aggregate consumption

Trillion, Indian rupees, 2000

20

05

20

15

20

25

• Middle class to swell from just under 50 million today to about 583 million by 2025

• By 2025, India will produce 2 million globals annually

• Share of incomes of the middle class and globals will rise from less than 30% today to more than 80% by 2025

Strivers (500–1,000)

Seekers (200–500)

Aspirers (90–200)

Deprived (<90)

Globals (>1,000)

Strivers (500–1,000)

Seekers (200–500)

Aspirers (90–200)

Deprived (<90)

Globals (>1,000)

Strivers (500–1,000)

Seekers (200–500)

Aspirers (90–200)

Deprived (<90)

Globals (>1,000)

Shape of India’s Income Pyramid will change dramatically as Incomes grow

Source: MGI India Consumer Demand Model, v1.0

45

93

80

54

35

22

90

000

1985

02

18

928

1995

1416

755

41

1,107

2005E

11

19

43

1,278

2015F

2

32

36

1,429

2025F

100% Globals (>1,000)Strivers (500–1,000)

Seekers (200–500)

Aspirers (90–200)

Deprived (<90)

Middle class

Household income brackets

Thousand, Indian rupees, 2000

Share of population in each income bracket

Per cent, millions of people

Strong Growth of the Middle Class

Note: Figures are rounded to the nearest integer and may not add up to 100%

Source: McKinsey Global Institute

46

Into the future

◾ Large young age population with low but rising income and aspirations,

empowered by greater access to communication, and a right to vote , is resulting

in the politics of social security provisioning by the Government

◾ This social spend is primarily to support the consumption levels

◾ Growing share of revenue spend on social security, government is faced with the

daunting task of ensuring infrastructure build-up to sustain high growth necessary

for inclusive development

◾ Government cannot neglect the immense role of private sector in infrastructure

provision and do all that it takes to attract private investment

◾ Government would also do well to allocate larger share of social spending on

social infrastructure – education & health – as well as physical infrastructure in

rural areas and cut down on wasteful and inefficient spending

◾ Government with its political leadership, judiciary and bureaucracy should remove

all prevailing hindrances and facilitate private investment

47

IDFC has evolved and grown...

48

IDFC Building Nation

◾ IDFC has contributed

– Rs 29234 Cr to power 35,524MW (also the largest private sector financier of renewable

projects)

– Rs 700 Cr to 2 Airports

– Rs 14,927 Cr to 1,80,000 Telecom Towers

– Rs 1800 Cr to 11 ports and Terminals

– Rs 10,600 Cr to build 4054 Kms of Road

Thank You!