Building India – Financing and Investing in Infrastructure, according to McKinsey & Company

India faces multiple challenges along all these dimensions in its quest to reach the targets set by the Eleventh Plan. To date, India’s success across sectors has been mixed. Capacity under construction or fully constructed relative to the Eleventh Plan (an integrated measure of the first three dimensions mentioned above) reveals that only the power sector is on track, achieving 100 per cent of planned capacity, while the ports sector is at 85 per cent, the airports sector at 75 per cent2 and the roads sector at 50 per cent (including the National Highway Development Programme (NHDP) that has achieved only 10 percent of planned capacity).

But even assuming the bottlenecks in project creation, uptake and execution ar tackled, India is on course to a deficit of $150bn to $190bn in financing core infrastructure sectors. Structural impediments in the financial system coupled with the global credit crisis will constrain capital flows to the sector, perpetuating the deficit in core public goods and persistent inefficiencies in the economy. These consequences can be forestalled only by expeditiously reforming the financial sector t eliminate impediments to existing sources of capital, allowing new investor groups into infrastructure projects and adapting innovative mechanisms to channel investment into the sector.

Nevertheless, the infrastructure  sector  provides  a  large  opportunity  for  financial sector players, with potential revenues of  $10bn to $12bn between the financial years 2010 and 2014,3 and a revenue pool of  $25bn to $29bn beyond 2014. Several project models with different risk-return implications are available for capital participation across all core sectors.  Success will lie in building a profitable business model that earns a high sustained return on capital.

Read: Building India – Financing and Investing in Infrastructure

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