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Monday, January 19, 2015
India needs to invest Rs.26 trillion on infrastructure: Study
[Editor: This move by the GOI is likely to perk up, demand for the building materials, such as steel, cement, glass, wood, aluminium, ceramics, etc. Moreover, the Chinese steel prices are seen hitting bottom in January, 2015. Therefore, the investors are suggested to buy the scrips from this space and keep holding]
The investment requirement for all the infrastructure projects was revealed by a research paper brought out by industry lobby PHD Chamber of Commerce and Industry and Crisil Ratings.
"Of the estimated Rs.26 trillion amount for infrastructure projects, close to 80 percent will be needed for the power, roads and urban infrastructure," said Alok B. Shriram, president, PHD Chamber.
"In urban infrastructure, municipal bodies are likely to need significant investments for constructing urban roads, expanding transport and revamping water supply and sewerage infrastructure."
The paper pointed out that 70 percent of the projected investments for infrastructure would have to be funded through debt, banks remaining the largest source of finance.
External Commercial Borrowings (ECBs) is recommended as another source of funds by the paper. The research paper said that 14 percent of the projected fund requirement can come from the ECB route which works out to be Rs.2.5 lakh crore.
"The balance of Rs.7 lakh crore, which is about 40 percent of the projected requirement, is expected to come through bonds issuance, provided the bond market is further deepened with critical measures by RBI and SEBI," the paper said.
The paper admitted that banks might not be able to finance infrastructure sector on their own as it might pose a risk of assets liability mismatch.
The paper said that the mismatch may arise as infrastructure project loans have long tenures of 10 to 15 years, while bank deposits, the main source of funds, typically have a maturity period of less than three years.
The research paper added that as banks might not be able to finance the projects alone, there was a need for liberal investment norms that allow pension funds and insurance companies to use their corpus to finance infrastructure projects.