Long-term investment in upgrading infrastructure will have its beneficial fallout on the property segment. A look by K. Sukumaran

In common parlance, infrastructure means facilities such as roads, railways, waterways, ports, airports etc. It could also mean educational institutions, shopping malls, sporting arcades and other requirements of storage, processing, market yards, hospitals and the like which are part of growth and development of the society. In India, planned development was initiated and implemented through Five-Year Plans. While the 11{+t}{+h} Plan is coming to a close this year, ground work for finalising the 12{+t}{+h} Plan for the period 2012 -2017 is in full swing. Initially, these plans concentrated on development of basic and heavy engineering industries such as steel, cement, and defence equipment. Agriculture too received primacy in a couple of them. Subsequent ones laid stress on transport & communication, aircraft & ship building industries, export-oriented activities etc. Housing, urban development and technological upgradation too received support from time to time. The 12{+t}{+h} Plan preparation is going on at a time when the growth rate is sliding down. This itself is a great challenge to the Planning Commission, the apex planning policy maker.

The essential requirement of infrastructure development is the huge long-term investment from which the returns is low and sometimes negative. . Financing long-term infrastructure by the State alone may not be feasible as increasing public debt will be a drag on governmental finances. It is in this context that PPP (public-private partnership) has been found to be viable for financing infrastructure. Even in such a model, the government has to find funds to meet its share of investment.

Huge investment

India is planning to invest one trillion dollar equivalent in infrastructure during the 12{+t}{+h} Plan, as stated by the Prime Minister while addressing a conference of PPP in national highways, in New Delhi, recently.

Debt fund is a type of pooled fund in which the assets held are in the form of fixed income financial instruments. Debt funds are usually long-term bonds floated by the State and its arms such as highway authority, Railways and local bodies such as municipalities, with tax exemption tags. These quasi-government funds are often guaranteed by the State / Central Governments in regard to payment of interest and principal.

It is stated that the Finance Ministry is working on the details of the Fund. It is also learnt that the India Infrastructure Fund will be set up jointly by banks and other institutions including SBI, ICICI, LIC, and UTI as sponsors who have pension funds, insurance funds, and foreign sovereign funds, as also loans from the Word Bank, Asian Development Bank etc. The sponsors will also have token contributions raised out of tax-free bonds. Lendings from the Fund will be used for discharging the secured debt of railways, ports, metro rail, airports projects etc. 85 to 90 per cent of the projects will be financed by the Fund. The proposed Indian Infrastructure Fund will be a legal entity managed by a small team of experienced professionals.

A Fund Manager will be selected after extensive search. He will be of international repute and will have the knowledge and experience in fund management at the global level. The Fund will be under the surveillance of Comptroller and Auditor General of India and accountable to Parliament.

The Prime Minister has suggested maintaining complete transparency in awarding contracts for project implementation to eliminate any possibility of favouritism. Considering the action plan for constructing 20 km of roads a day, the execution of the projects has to be of a high degree of efficiency.

Impact on real estate

Infrastructure such as highways will spur growth of the property segment, both residential and office, across the length and breadth of the highways. People will move out from the central parts of cities/towns and settle on either side of the highways, at least on highway intersections to start with.

This will lead to further growth of ancillary service industries/activities across the highways. Inter-State movements of goods and services will also accelerate. This will ultimately lead to growth of new residential colonies, private layouts and satellite towns.