India Infrastructure Planning Commission sets stretch targets for 12th Plan period:: JPMorgan

 Planning Commission issued the draft 12th five year plan (FY13-17)
document, recently. The USD1trillion investment target in infrastructure
remains intact and implies an ambitious 18.7% CAGR in infra spending (or
2.36x previous plan capex). The power sector (incl. renewables) accounts
for 32% of plan investments, roads 17%, telecommunications 17%, railways
(incl. MRTS) 11%, irrigation/water supply & sanitation 13% and others 9%.
The draft plan proposes a V-shaped recovery in fixed investment rate after
sequential decline through five years of the 11th Plan period.
 A slow start to the plan, with high backended growth expectations:
Planning Commission’s base case incorporates 8.2% GDP growth over the
12th Plan period. The plan has opened to a slow start. J.P. Morgan
Economics team estimates India's GDP growth at 5.2% in FY13 and 5.8%
in FY14, well below Planning Commission estimates of 6.7% and 8.1%,
respectively. The base-case scenario incorporated in the draft plan is titled
'Strong Inclusive Growth'- it is a projection of what is possible if early steps
and policy actions are taken to reverse the current slowdown and aid growth.
The 12th Plan growth rates can fall short in the event of ‘Insufficient Action’
(6-6.5% GDP growth) or worse ‘Policy Logjam’ (5-5.5%).
 11th Plan report card lends confidence: 93% of previous plan target infra
spend (USD470bn at current prices) is anticipated to have been achieved, as
per Planning Commission data. Infra investment CAGR in 11th Plan period
was a healthy 15.8% (or 2.1x previous plan capex). Telecom and roads
overshot 11th Plan target by 20% and 15% respectively, while railway,
irrigation and port capex fell short by 25%, 23% and 60% respectively.
 Private sector outperforms in the 11th Plan: In previous plan, private
sector capex exceeded target by 13%, while public spending fell short by
16%. Private sector exuberance was most notable in power (64% higher vs.
target) and telecom (35% higher). Private sector share of 12th Plan spending
is expected to be ~48%, up from 37% in 11th Plan and 22% in 10th Plan.
Notably the share of central govt. in 12th Plan infra capex is down to 29%
vs. 42% in 10th Plan; this points to reducing role of union budget in tracking
progress of plan spending.
 The funding challenge, healthy capital market sentiment is key: Funding
sources envisaged for USD1trillion, include an even mix of debt and nondebt.
Planning Commission pegs the gap in identified sources of debt at
USD93bn or 18% of total requirement. In our assessment progress on
Infrastructure Debt Funds (IDF), and long term ECBs are potential means to
shore up debt funds. Securing equity fund requirement by private sector
(pegged at USD153bn over 12th Plan) is a bigger concern as, (a) delays in
sorting out fuel, tariff, land, regulatory and environmental uncertainties
could depress internal accrual projections, (b) highly levered private
corporates are in need of a dose of equity infusion, healthy capital market
sentiment/ PE fund appetite shall prove key for them to push ahead with
growth plans.

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