New view on infrastructure: Some risks are worth taking

By Akshay Jaitly, Trilegal
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This is being written as the election results roll in with a decisive mandate for the National Democratic Alliance, the Bharatiya Janata Party and Narendra Modi as prime minister. The election was fought and won on the basis of development, governance and change, three words that resonate with the whole nation as with anyone who has been involved with various infrastructure sectors in the past five to10 years.

Akshay Jaitly
Akshay Jaitly

The development that the prime minister-elect speaks of and that hundreds of millions of Indians aspire to must be premised on vast and rapid improvements to India’s infrastructure. To achieve transformational change in Indian infrastructure, it will be essential for the government to adopt a substantially new approach to infrastructure development and, in particular, the manner in which the government engages with the private sector and private capital. This in turn will require the government and policy makers to acknowledge and appreciate – in a far more profound and mature fashion than in the past – the perception of investors and others who deploy capital in infrastructure of the level of risk in Indian infrastructure projects.

Modest returns

Infrastructure projects, by their nature, involve large investments, over long periods of time. Those who make such investments expect stable, long-term and (relatively) low returns from these projects. In most cases, the rates of return from infrastructure projects in India are capped – take for instance the 15-18% return-on-investment caps reflected in Indian power tariffs. Following various forms of leakage, this usually results in a real return of around 12%.

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Akshay Jaitly is a partner at Trilegal. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.

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Email: Akshay.Jaitly@trilegal.com

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