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Q3 to see jump in PE investment: ASSOCHAM

Business

After the lull last year, the Private Equity (PE) investments in infrastructure have shown revival trends, according to ASSOCHAM. The industry body in its paper titled ‘Private Equity in Infrastructure’ said that the Q1 and Q2 2010 have shown revival trends as large PE deals have started to emerge. With some of the 350 active funds withdrawing from India last year, the year 2009 witnessed much below the required level of PE investment which impacted the growth of infrastructure sector.

In Q1, PE firms have invested US$425 million in power generation as against US$2.7 billion during 2006-09. During the 2nd quarter, encouraging reports are emerging.
ASSOCHAM in a paper submitted to the Finance Minister has pointed out that the major discouragement to PEs has been some of the issues related to fiscal as well as regulatory side.
It has stressed the need for rationalization or set off for dividend distribution tax (DDT) in case of a multi-tier corporate structure. In the absence of the same, DDT is required to be paid every time before distributing the dividends to shareholders, which is like taxing the same dividend income more than once.
“The tax treatment of unlisted equity shares especially for all approved infrastructure sectors escalates the effective cost for such projects since each project is executed through a SPV. Therefore, tax treatment on unlisted equity shares especially for all approved infrastructure sectors should be brought at par with listed shares, it argued.
According to the ASSOCHAM paper on road infrastructure by 2015, volume of passenger and goods traffic is likely to rise by roughly 15% per year on an average. Key growth drivers in this segment include ambitious Golden Quadrilateral project, North-South and East-West Corridors and six-laning of National Highways and increasing private sector participation with 100% FDI under automatic route. The overall requirement of 30% private investment translates to US$154 billion of investment during 2007-12.
Rail traffic is expected to grow, with passenger traffic accounting for a 6% growth per year and freight traffic contributing to about 8%. Key growth drivers, according to ASSOCHAM, in this segment include increasing containerization of cargo, tariff rationalization and effective cost allocation, electrification of about 3,500 kilometres of network, doubling of tracks on heavily used routes, improvement in railway connections with ports, and special economic zones (SEZs) PPP envisaged in logistics parks, cargo aggregation and new routes for railways, it added.
Overall, ports handle 95% of India‘s trade in goods by volume and 70% by value. In the ports sector, by 2015, tonnage traffic is likely to increase by around 10% per year on average. Container traffic is expected to grow at a rate of 14% per year, putting activity at Indian ports above the global average of about 9% per year, it said. Key growth drivers in this segment include government‘s initiative to empower 12 major ports to world class standards, plan to improve rail-road connectivity to major ports, increasing private sector participation with 100% FDI under automatic route.
By 2015, air traffic is likely to increase by roughly 15% per year and cargo traffic by 11% per year on an average. Key growth drivers in this segment include huge growth in both passenger and cargo traffic (15% and 20% respectively) over the next five years due to robust economic growth, government incentives including 100% FDI for airports under automatic route and 100% tax holidays for airport projects; increased participation from the private sector, entry of several new privately owned airlines.
Telecom services are expected to grow at 150% over the next five years requiring large investments in network infrastructure. Key growth drivers for this segment include revenue-share model for licences issued by the government for telecom services in India, Unified access licences are available for providing telecom services on a pan-India basis, government incentives including 74% FDI in telecom services (FIPB approval over 49%) and 100% FDI in equipment manufacturing.
In the power sector, India requires an additional 90,000 MW of generation capacity in the next seven years with a corresponding investment in the transmission and distribution network. According to ASSOCHAM, key growth drivers for this segment include large demand supply gap – average energy shortfall of 7%, renovation and modernization of old thermal and hydro power plants, large untapped hydel power–over 150,000 MW as estimated by the government, increasing privatization of distribution networks–through bidding in 13 states.

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