Around the world, there is an explosion of investment is infrastructure, which is becoming a truly global market. James Stewart, KPMG’s global head (infrastructure), tells Sanjay Jog that population growth, urbanisation and poverty alleviation are major drivers of the trend in India. Edited excerpts:
Can you comment on the present state of infrastructure policies and financial needs to upgrade infrastructure in India?
The need and demand for infrastructure in India is fairly well understood and researched. The moot point, therefore, is to look beyond the numbers to the mechanism to deliver it and create awareness about the enormity of the task.
Hence, the key focus area should be integration in execution — between different infrastructure sectors themselves and institutions with differing jurisdictions of scope, function and geography. The focus has to be on an empowered mechanism that integrates infrastructure development to expedite the delivery process but which retains checks and balances within to ensure accountability.
The importance of integration lies in gaps that appear between different pieces of infrastructure. They adversely affect the availability of goods and services to the end user, affecting prices and by extension, inflation — which, in turn, retards growth.
Are the regulatory and administrative or procedural roadblocks a major problem in increasing the pace of development and attracting more investments?
The last decade has clearly seen select states strengthening infrastructure. This is not merely a political outcome with leaders taking cognisance of development driving political success. Rather, it stems from the fact that leaders have realised that quality infrastructure is also necessary to increase competitiveness in attracting industry and, thus, investments to the state for greater prosperity.
Thus, we are likely to see relatively greater action at the state and local level compared to central agencies in the coming few years. For this to occur, however, states will have to focus on developing capacity rapidly through leadership interventions and process improvements in select institutional champions. These are essential to the private sector, as they provide a measure of security, visibility and delivery speed to their investments.
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Your observations on trends in the infrastructure sector...
There is an explosion of infrastructure investment around the world and infrastructure is becoming a truly global market. We estimate that there will be some $40-trillion of investment in infrastructure over the next 30 years. The main driver behind this increased investment is economic growth. In addition, in developing economies (like India), population growth, urbanisation and relieving poverty are also major drivers. In developed economies, obsolescence and climate change are major drivers.
In terms of sectors, we are seeing a preference for infrastructure assets that have a user-paid cash flow; i.e., are not reliant on government to pay for it. This means more projects in power generation, ports, and toll roads. Social infrastructure like schools and hospitals remain very important but rely on central or local government to fund it.
Global mobility is increasing in infrastructure. Developers are increasingly looking beyond their domestic markets for opportunities. KPMG is working with international developers to introduce them to opportunities in India and also with Indian developers in overseas markets. Indian developers have built up a strong track record off the back of the domestic market — and are now looking to grow their business through international revenues.
What is your comment on the public–private partnership (PPP) model being adopted in infrastructure projects?
The PPP model started in the UK and Australia; it is now used around the world. Care has to be taken in using the term PPP, as it has many definitions and uses internationally. Independent studies have shown PPPs to deliver infrastructure on time and on budget and with better value for money. The PPP model has proved very effective in allowing the public sector to specify the infrastructure they want, but it transfers the main risks of delivery to the private sector.
How has KPMG positioned itself in India’s infrastructure growth story?
To date, the Indian market has been very reliant on bank finance. The volume of infrastructure investment is going to put severe pressure on the lending capacity of the banks, and there is likely to be a capacity gap. India is not alone in this predicament.
Banks are not the natural long-term lenders for infrastructure. Their expertise is in understanding construction and development risk. But, once the project gets to the operational phase with less risky long-term cash flows, the natural lenders are the institutions who wish to buy long-term cash flows to match their long-term liabilities. Therefore India, like a lot of other countries, needs to find a way of bringing more institutional debt to the market. The proposal for an infrastructure debt fund is therefore an excellent initiative.
KPMG is working with governments, sponsors and financiers around the world and will bring this global experience to bear on the Indian market. In particular, we have the ability to help international institutions bring their products to the Indian market and Indian enterprises go global.