1

THE INFRASTRUCTURE OPPORTUNITY :

A MACRO PERSPECTIVERajiv B. Lall

Managing Director & CEOInfrastructure Development Finance Company Limited

JAPANMAY 2007

2

The Context : India vs China

Consumption vs Investment led growth

Bottom Up vs Top Down

Private vs Government led build out of infrastructure

3

India Infrastructure Investment (% of GDP)

0

1

2

3

4

5

6

7

8

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

E

2012

E

33 Year Low33 Year Low

4

INFRASTRUCTURE SPENDING & FINANCING (% OF GDP AT CONSTANT 2005 / 06 PRICES)

Bulk of spending will have to come from non-government sources.Bulk of spending will have to come from non-government sources.

Will need an average of at least $ 5 billion a year in overseas funding Will need an average of at least $ 5 billion a year in overseas funding just for infrastructure over next 5 years.just for infrastructure over next 5 years.

2006/07 (estimated) 2011/12

Spending

Total 5.0 7.5o/w

Government 1.7 2.0Non-government 3.3 5.5

Financing

Domestic Savings 4.7 6.5Foreign Savings 0.3 1.0

~ $ 360 billion~ $ 360 billion

over 5 years or >over 5 years or >

$ 70 billion / year$ 70 billion / year

5

Sustainable Reform & Infrastructure Development

Reform Impulse

CompetitionCompetition Resistance from incumbentsResistance from incumbents

Declining CostDeclining Cost Support from consumersSupport from consumers

Irrevocable change sustainable reformIrrevocable change sustainable reform

““Tipping Point”Tipping Point”

6

Telecommunication Reforms

Telecommunications

In 1994 – Telecom policy – mobile phone licenses for major metros (2 in each city), followed by licenses for mobile and fixed line services in 15 circles (1 each) – major imbroglio due to unrealistic bidding

Resolved by a New Telecom Policy in 1999 – migration to a revenue share regime, more players, universal access service – challenge now is rural connectivity

Regulator (TRAI) established – initial hiccups but now functioning well Private investment has grown the market - over 200 million subscribers;

growing at over 5 million per month Prices – mobile from 37 cents per minute to 0.01 cents per minute

7

Mobile Growth and Effective Charge per minute

Source : TRAI (2005C and 2006C)

Mobile Growth and effective charge per minute

0.88 1.20 1.88 3.58 6.50

13.00

33.60

52.17

65.05

75.92

101.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Sep-05 Dec-05 May-06

Eff

ecti

ve c

har

ge

(in

Rs.

per

min

.)

0.00 6.00 12.00 18.00 24.00 30.00 36.00 42.00 48.00 54.00 60.00 66.00 72.00 78.00 84.00 90.00 96.00

102.00

Mob

ile

sub

scri

ber

bas

e

(in

mil

lion

)

Fixed Mobile (Rs./min) Mobile Subscriber base (Millions)

8

Sector Limit

AirportsUp to 100%, with FDI beyond 74% requiring Government approval

Hotels & Tourism100% FDI is permissible in the sector through the automatic route

Housing & Real Estate

Construction – 100% (If developed area exceeds 50,000 sq metres)Housing – 100% (If area exceeds 25 acres)

PowerUp to 100%, FDI allowed in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants

Roads & Highways, Ports & Harbours

100% FDI is permissible in the sector through the automatic route in both construction and maintenance

Telecommunication74% FDI is permissible in the sector through the automatic route

Source: Investing in India-FDI Manual, DIPP

Foreign Direct Investment

9

Opportunities

Highways : $ 48 billion Total emphasis on BOT roads NHDP 1 to 7 (40,000 kms of new road)

Railways : $ 12 billion Private container trains Dedicated Freight Corridors Logistic Parks / Railway Stations

Ports : $ 12 billion Concession at major ports and development of minor

ports

Airports : $ 9 billion Delhi, Mumbai, Bangalore, Hyderabad, Chennai, Kolkata

& 35 non-metro airports

Power : $ 130 billion Generation and transmission Wind, hydro

10

IDFC : Who we are Project finance : Debt, Sub-debt, Mezzanine Equity Finance – principal investments and asset management

IDFC Private Equity – 2 funds aggregating USD 630 million Project Equity Funds USD 1 billion by March ’08

Investment Banking and Advisory Services Focus areas : Energy, Telecom, Transport & Industrial / Commercial

Infrastructure Total Loan Assets of close to USD 4 billion + USD 0.5 billion in equity

investments Market cap : USD 2.2 billion Track record of performance and consistent growth

25% of the loans to private infrastructure projects Net Non Performing Assets: Nil FY 2002 – 2007 CAGR in Balance Sheet – 42%, Infrastructure

loans: 48%, Total Income: 31%, PAT: 22%

Unique Public Private Partnership delivering innovative financial solution to Indian Infrastructure Sector

Unique Public Private Partnership delivering innovative financial solution to Indian Infrastructure Sector