Introduction

1. Introduction
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1.1 General Definition

Infrastructure is a term architects, engineers, and urban planners use to describe essential facilities, services, and organizational structures for cities and communities. Infrastructure includes: Roads and bridges Mass-transit systems Air control towers Telephone lines and cell phone towers Dams, reservoirs, and sewers Electrical lines Fire stations and equipment Hospitals, clinics, and emergency response systems Schools Law enforcement and prisons Sanitation and waste removal Post offices and mail delivery

1.2 Why India is favourite destination

Emerging strong even during the scariest phase of global financial meltdown, India has become one of the favourite investment destinations for the foreign investors across the globe. The investment scenario in India is getting better and better with each passing day due to high confidence level of the investors. Today, India is considered the 4th biggest economy in the world. Its impressive GDP rate, especially in the field of purchasing power, has catapulted it to second position among all the developing nations. According to forecasts, Indian economy will grow to become 60% in size of the economy of US. It will also witness macro-level stability in economic conditions. Behind all this, investment can be said to be the key player. Investment scenario in India in infrastructure sector is attractive. Many sectors have been allowed to receive private investment, which is truly a turning point. In past few years, many road projects have been launched under National Highway Development Programme. The project costing neared about US$ 12 billion. In this, the foreign construction companies have also been invited to take part. Telecom sector and power reforms have also experienced massive improvement. Telecom and Oil and Gas sector are seeing disinvestments processes. Government is also thinking of introducing a more integrated transport system with chalking out plans for the investment. It cannot be denied that India has been successful in launching plenty of infrastructure projects with encouraging private participation in the sector. The booming IT and BPO sectors of India are the absolute testimony to its success story in the infrastructure projects. The overall outlook of the roads and highways in India has also changed for the better. Many cities and towns have been inter-connected to each other. Both state and central governments have dished out significant amount to the development of highways. India to become the second Largest Economy by 2050 Indian Economy The best barometer of countrys economic standing is measured by its GDP. India, the second most populated country of more than 1200 million has emerged as one of the fastest growing economies. It is a republic with a federal structure and well-developed independent judiciary with political consensus in reforms and stable democratic environment .In 2008-09 Indias economy-GDP grew by 6.5% due to global recession. In the previous four years, economy grew at 9%.The Indian economy is expected sustain a growth rate of 8% for the next three years upto 2012. With the expected average annual compounded growth rate of 8.5%, India's GDP is expected to be USD 1.4 trillion by 2017 and USD 2.8 trillion by 2027. Service sector contribute to 50% of Indias GDP and the Industry and agriculture sector 25% each.

Figure 1.1 Infrastructure Investment (in billion US $)

The robust current growth in GDP has exposed the grave inadequacies in the countrys infrastructure sectors. The strong population growth in India and its booming economy are generating enormous pressures to modernize and expand Indias infrastructure. The creation of world class infrastructure would require large investments in addressing the deficit in quality and quantity. More than USD 475 bn worth of investment is to flow into Indias infrastructure by 2012. No country in the world other than India needs and can absorb so many funds for the infrastructure sector. With the above investments Indias infrastructure would be equal to the best in the world by 2017. In the next five years planned infrastructure investment in India in some key sectors are (at current prices): Modernization of highways -US$ 75 billion, Development of civil aviation US$ 12 billion, Development of Irrigation system- US$ 18 billion, Development of Ports-US$ 26 billion, Development of Railways- US$ 71 billion, Development of TelecomUS$ 32 billion, Development of Power -US$ 232 billion. Thus in the eleventh five year plan ,investment in the above sectors (Aviation infrastructure ,Construction infrastructure, Highway infrastructure ,Power infrastructure, Port infrastructure ,Telecom infrastructure ) will be US$ 384 billions(Rs 17,20,000 Crores) considering the huge infrastructure market potential in India. In addition to the above, investments to the tune of US$ 91 billions have been planned in other infrastructure sectors like Tourism infrastructure ,Urban infrastructure ,Rural infrastructure, SEZs ,and water infrastructure and sanitation infrastructure thus making the total infrastructure investments in the eleventh plan period 2007-08 to 2011-12 as US$475 billions. Domestic and global infrastructure funds have exposure to Indian infrastructure sectors. India has a population of 1.1 billion. More than 30% of the worlds youth live in India. More than 55% (550 million) of the Indias population is less than 25 years of age. This is nearly twice the total population of the United States. Indias urban population constitutes around 30%. India is a nation growing younger (population in working age group projected to increase) as the developed world faces the problem of aging. India has a huge reservoir of English speaking, skilled and relatively inexpensive manpower with over 2.6 million engineers (degree and diploma holders), 814,000 software professionals, growing every year. It also got a well developed banking system, with over 67,000 branches and banking practices conforming to
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international best standards with net non performing assets ratio for all commercial banks 1.2%. It has a sophisticated, well regulated capital market with 23 stock exchanges of which the two largest, the National Stock Exchange and Bombay Stock Exchange ranked as no 3 and 5 in the globe by number of transactions. India has more billionaires than China. This year there were 15 billionaires in China but last year in India, there were 20 billionaires, according to the Forbes magazine. Forty-four per cent of Top 100 Fortune 500 companies are present in India. Some of the fortune companies present in India are ABB, Accenture, Alctel, AMD,ANZ, APC, Bosch, CSC, Citibank, Caterpillar, CA, Delphi, Dell, Dupont, Digital , Delloitte ,Ford,HSBC,Hyundai, Google,Intel,GE, Oracle ,Microsoft , Nokia, Siemens. India is the fourth largest economy in terms of purchasing power parity, the tenth most industrialized country in the world, the tenth largest economy in the world in terms of GDP and is one of the fastest growing developing economies today in the world. The most remarkable feature of its impressive growth story, especially over the last decade and a half, is that it has happened in a solid, democratic environment, making the process sustainable. The present infrastructure in India is grossly inadequate for the 1.1 billion populations. To improve the infrastructure of India, large investments have been planned by Indian government.

1.3 Level of Infrastructure in three types of Economies

1.3.1 Developed Economy: Infrastructure provides an essential service whose demand and supply fundamentals are highly local. As a result, infrastructure markets are less correlated around the globe and this should improve the diversification of a global infrastructure allocation. As reflected in table below, different regions are operating at different phases of their business cycle. Fastgrowing Asian markets exhibit much stronger economic and population growth, whereas the Western, developed regions exhibit less volatile economic growth patterns. Taking advantage of regional differences in a global infrastructure allocation can enhance portfolio returns while reducing volatility.

Business Cycles Are Not Synchronized (Real GDP Growth)

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Figure 1.2 Regional Business Cycles Are Not Synchronized (Real GDP Growth)

The path of economic performance is highly varied across the three major regions. For example, the Asia Pac region underwent a major recession during 1997-1998, whereas the impact on the rest of the world was relatively less. Since 2001, however, economic growth in the broad and diverse Asia Pac region has outpaced the Americas and Europe. Clearly, each region is exhibiting divergent growth patterns Outside of the United States, in most of the developed world and in many emerging markets, countries have committed to fulfilling infrastructure agendas as essential for sustaining or enhancing living standards in an increasingly competitive global marketplace, says the report, which looks at infrastructure investments on six continents. (Expenditures for global infrastructure requirements over the next 25 years are currently estimated at $50 trillion.) Among the countries in which infrastructure is a top priority: The UK despite an austerity budget has committed $326 billion over the next five years for projects related to rail, energy production and broadband access. France, Germany and Spain continue to build high-speed rail and freight networks between cities and as extended cross-border links. Australia is focusing on port expansion, rail rebuilding, and traffic congestion relief projects; China is funding a host of wide-ranging infrastructure programs, including completion of a 10,000-mile high-speed rail network by 2020. Other projects
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include new airports, ports and transit systems, all of which contribute to Chinas standing as the worlds second-largest economy; India is actively seeking private financing for desperately needed infrastructure to sustain growth and meet its economic potential; and Brazil is pushing ahead with road, transit and water projects to accommodate its fastgrowing economy, and to prepare for upcoming World Cup and Summer Olympics games.

1.3.2 Developing Economy: Policymakers in developing countries often point to insufficient infrastructure inadequate highways, airports, maritime facilities, and the like as a constraint on their countries growth prospects. So its not surprising that these policymakers seek ways to find room in their budgets for greater public investment in infrastructure without saddling their country with unsustainable debt. But they can find this difficult to achieve. For various political reasons, these countries are often unable to cut less productive current spending for example, on general subsidies for fuel to increase public investment. They can seek funds from external sources, but may face limits on how much their country can borrow particularly if it has benefited from debt relief in recent years or if additional borrowing is available only on no concessional terms. Moreover, a long legacy of failed public projects in a number of countries further complicates decisions about external borrowing. But more important than whether a country can expand its public investment in infrastructure is whether it should. Underlying the debate over increasing public capital is the question of the productivity of public investment whether it aids economic growth. If public investment is productive, it is easier to justify external borrowing to support it. Unfortunately, the results of studies on public investments impact on growth are unclear; leading many to conclude that it is unproductive. However, some recent studies for example, by the World Bank (2007) conclude that public spending on infrastructure, education, and health yields positive effects on growth. The report from the Commission on Growth and Development (2008) notes that fast-growing countries are characterized by high public investment, defined as 7 percent of gross domestic product (GDP) or more. Mixed results Some of the discrepancy in existing findings relates to what is being measured. Many studies look at the investment rate the percentage of GDP devoted to adding to the capital stock. We find that the more important focus is the rate of growth of the capital stock itself. The discrepancy between the two suggests at least three reasons for the mixed evidence on the relationship between public investment and overall economic growth:

Public investment and public capital can grow at different rates, depending on the initial level of capital stock. For example, public investment in a given year may not be large enough to replace the depreciated capital stock the amount of capital used up, say by the wear and tear on a highway or a bridge from automobile and truck traffic. One cannot expect public investment to have a positive impact on growth if it is not big enough to keep the countrys capital stock from declining. There is a two-way relationship between public investment and growth that makes it difficult to isolate the effect of one on the other: public investment affects growth, but it is also affected by growth. For example, public investment may fall during an economic downturn simply because of a lack of resources, which is typical in many countries. Most studies do not take into account that governments face a budget constraint they must finance higher investment spending either by raising taxes or borrowing or by cutting other spending. Higher taxation to finance public spending could introduce distortions in the economy and offset some of the productivity gains from public investment.

Economic theory suggests that the level of output is determined by the capital stock employed in production, rather than the annual investment flow. Although the two variables are closely linked, the capital stock together with other production factors, such as labour and technology determines an economys production potential. The investment flow in any given period, by contrast, determines how much capital is accumulated and therefore available for production in the subsequent period in contrast, monetary tightening should begin or continue in emerging economies where overheating pressures are starting to emerge. Recent policy rate hikes by various countries are welcome in this regard, although in some of them more nominal exchange rate appreciation would have been preferable. Such tightening can, however, exacerbate the strong capital inflows that many of these economies are now experiencing. Therefore, prudential measures to keep increases in credit or asset markets from becoming excessive should also be considered. The renewed surge in capital inflows to some emerging markets, whether driven by stronger fundamentals in the emerging economies themselves or by looser monetary policy in advanced economies, requires an appropriate policy response. A number of these economies quickly overcame the crisis and have continued to run current account surpluses, yet their real effective exchange rates remain close to precrisis levels that is, the response to renewed capital inflows has been to accumulate even more foreign exchange reserves. For these countries, allowing the currency to appreciate would help combat overheating pressures and facilitate a healthy rebalancing from external to domestic demand. In other countries where the currency is above levels consistent with medium-term fundamentals, fiscal adjustment can help lower interest rates and restrain domestic demand. Macroeconomic policy responses may, however, need to be complemented by strengthened
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macro-prudential measures (for example, stricter loan-to-value ratios, funding composition restrictions) and, in some cases, capital controls. 1.3.3 Underdeveloped Economy It is known that third world debt is making its poorest people suffer more than ever. Although developed nations provide billions of dollars as foreign aid to poor countries, maximum amount of these funds are siphoned off by corrupt government officials and the rich and powerful. So far as foreign aid is concerned, poverty sells! Developed countries analyze the level of poverty of the general populace of a country to decide how much aid it needs. For the rich and powerful who are looking to bite into fresh funds, the poorer the common people the more the money for their own bank account. The infrastructure in the poorest third world countries is below even the basic acceptable levels. In the remote villages where majority of the population lives, there are no paved road, no electricity, no water supply, barely any provision for irrigation and whatever sources of water are available are mostly in unusable or undrinkable condition. Healthcare and insurance are alien terms for a people worry about how they will get the next meal for their family. As governments push its population to the brink by forcing them to sell their products at throw away prices so that it can export these goods and maximize foreign exchange, the poor end up paying the price for making the rich richer. In lower classes of the society, men rule while women and children have it even worse than others. The needs of children get ignored by parents struggling to stay alive. While most poor third world countries have millions of children suffering from severe malnutrition and poor health, the number of children dying due to starvation is shocking. As per the 2000 UNICEF Progress of Nations report, over 30,000 children below the age of 5 die each day due to starvation. That makes it a total of 11 million children each year. One cant imagine the numbers should children a year or two older are considered.

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1.4 Urban & Rural infrastructure

Urban Infrastructure In Indian context the Constitution of India has assigned the subjects pertaining to the urban areas to the State Legislatures. In so far as the urban issues are concerned, the legislative powers of the Union are limited only to the following subject/ areas: Delhi and other Union Territories. Property of the Union. A subject of the state list which two or more state legislatures authorize Union Parliament to legislate. Amendment of the Constitution of India.

In exercise of these legislative powers, the Parliament of India has enacted legislations which are administrated by the Ministry of Urban Development & Poverty Alleviation.

Housing and Urban Policy in India

The policies of urban development and housing in India have come a long way since 1950s. The pressure of urban population and lack of housing and basic services were very much evident in the early 1950s. In some cities this was compounded by migration of people. However, the general perception of the policy makers was that India is predominantly an agricultural and rural economy and that there are potent dangers of over urbanisation which will lead to the drain of resources from the countryside to feed the cities. The positive aspects of cities as engines of economic growth in the context of national economic policies were not much appreciated and, therefore, the problems of urban areas were treated more as welfare problems and sectors of residual investment rather than as issues of national economic importance. For the better development of urban infrastructure the government started allocation funds for its development in Five-Year Plans. The Plan identified the key issues in the emerging urban scenario:

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The widening gap between demand and supply of infrastructural services badly hitting the poor, whose access to the basic services like drinking water, sanitation, education and basic health services is shrinking. Unabated growth of urban population aggravating the accumulated backlog of housing shortages, resulting in proliferation of slums and squatter settlement and decay of city environment. High incidence of marginal employment and urban poverty as reflected in NSS 43rd round that 41.8 million urban people lived below the poverty line.

The response of the Plan to this scenario was the launching of Urban Poverty and Alleviation Programme of Nehru Rojgar Yojana (NRY) Plan Outlay in Housing and Urban Development Sector (Rs. in million) Housing & Urban Percentage share in Development the total 488 1200 1276 733 2702 11500 3688 24884 42295 3001 105000 158800 405000
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Plan First Plan Second Plan Third Plan

Total Outlay 20688 48000 85765

2.1 2.5 1.5 1.1 1.7 2.9 3.0 2.6 2.3 2.2 2.4

Annual Plan (1966-69) 66254 Fourth Plan Fifth Plan 157788 394262

Annual Plan (1977-80) 121765 Sixth Plan Seventh Plan 975000 1800000

Annual Plan (1990-92) 1338350 Eighth Plan Ninth Plan Tenth Plan 4341000

Table 1.1 Plan Outlay in Housing and Urban Development Sector Rural Infrastructure: The importance of rural infrastructure is demonstrated by the positive influence that an increase in its stock has on the promotion of economic growth and decline in the incidence of absolute poverty. The objective of this study is to assess the status of rural infrastructure, analyze the trends in investment and suggest such measures as would contribute to a better flow of infrastructure services to the rural population. For any country, development of rural areas is a pre-requisite for the overall growth of the economy and it is particularly important for a developing country such as India, where 71% of its one billion plus population reside in the rural areas. There is thus a serious thinking on part of policy planners and implementing agencies that for a prosperous India, strengthening of the network of rural infrastructure facilities is critical. Broadly speaking, it can be said that development of rural infrastructure has a five-fold impact on the economy i.e. Creating better access to employment and providing further earning opportunities. Increasing production efficiency. Creating access to previously inaccessible commodities and services. Time saving which can be better utilized in productive activities Better health and physical condition of the rural population.

When policy makers are deliberating on which form of infrastructure restructuring to undertake or how to design a regulatory agency, it is important that the right decisions are taken. A key element of any decision making process should be a review of the evidence on the impact of the various types of reforms. The need for policy reform is brought out by a study by Carsten Fink et. al (2002). The study is carried out for the telecommunications industry. The econometric results show that Privatisation, competition and the introduction of an independent regulator lead to an increase in tele-density by 8 percent and an increase in labour productivity by 21 percent. Fink, Mattoo and Rathindran (2002) claim that private ownership is likely to lead to greater internal efficiency for a variety of reasons, ranging from lower costs of monitoring, more precise and measurable targets and greater flexibility to devise incentive contracts. Many other studies have come out in favour of Privatisation.
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For example, Privatisation of Argentinea infrastructure companies yielded rich dividends in terms of efficiency increase and price reduction in the period, 1993-95, as is documented by table below:

Changes in Performance between 1993 and 1995 (%)

Table: 1.2 Changes in Performance between 1993 and 1995 (%) However, there are enough documented failures of Privatisation as well. Two out of the many examples are the case of Telecommunications of Jamaica and Lan-Chile, the Chillean National animal. PankajTandon (1997) makes the point that the efficiency of a firm is determined not by whether it is public or private but by whether it is exposed to competition or not. His hypothesis is consistent with the success stories and failures in the public as well as the private sectors. An additional point made by him is that the success attributed to Privatisation is often the result of general conditions of boom in the economy. However, a certain amount of Privatisation might be necessary for the introduction of competition. On the other hand total Privatisation might give rise to the formation of cartels which might mimic a monopoly like environment. Competition can be expected to bring benefits in productive, allocative and dynamic efficiency. Regulatory regimes can be set up to mimic competition when this is absent from the market, although this is likely to be an
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poorer alternative because of problems associated with imperfect information. Furthermore, the costs of acquiring and analysing the data will ultimately have to be paid for by the consumer. In general, governments have differed in their willingness to concede control to the market, and most have a penchant for gradualism. Competition has been introduced, but the number of firms has been fixed by policy. Privatisation has often been partial with limitations imposed on foreign participation; autonomous regulators have been created but are rarely fully independent Commitment to Privatisation on paper without proper implementation is not enough. No government, whether in developed or in developing countries, has been able to foresee every pitfall and so no perfect model of reform exists. Countries in Latin America such as Argentina and Chile, that have led the reform process, have had mixed successes and failures, and despite these problems the reform process has been able to make a significant impact on the performance of the economy. What is important, however, is to accept the fact that, while these sorts of problems are bound to arise, a mechanism does exist which ensures sufficient flexibility to deal with these problems effectively and fairly. It should be recognized that reform is an on-going process and that governments should treat initial major reforms as the start of a process that is capable of yielding substantial benefits to the economy in question. However, governments can take several steps to limit their exposure to conduct of regulation risks. These include the introduction of: The greatest degree of competition that is possible (although the cost-benefit tradeoff should always be considered); Thus, exclusivity agreements with any infrastructure provider as is seen in many countries should be avoided. Rules to ensure that vertical and horizontal ownership issues that make conducting regulation even more difficult are limited (or hopefully non-existent); Rules to ensure that all the information that the regulatory authority is likely to need is available in a timely, consistent and accurate format. Cross-subsidisation should be avoided as the section of the population, which is supposed to subsidise the rest often takes recourse to avenues other than using the infrastructure. Subsidies must be targeted towards the poorer consumers but must be financed by government tax revenues or an infrastructure development fund.

Finally, it is also important to place the reform of the utility and infrastructure companies in the context of broader institutional reform. Some of the successes of the utility and infrastructure reforms may be diluted in case other broader reforms have not occurred. The impact of labour-shedding created by providing the private operators with incentives to achieve the lowest costs of production is a good example. If the labour market still faces rigidities and is consequently unable to handle the labour that is released from the utility and infrastructure companies, then some of the benefits of the sector reform will be lost.

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Another factor favouring Privatisation is the insufficiency of government resources to meet the increasing demand for infrastructure. This is especially true in the case of rural infrastructure development.

There are several aspects of reform that need to be considered. These include: Industry structure structural reform which is primarily concerned with the introduction of competition into a sector or the removal of barriers to entry to new players so that contestability is a real option; Operation conduct reform whereby a natural monopoly is constrained by rules covering areas such as quality, pricing and access. The key to the successful implementation and enforcement of these rules is an effective regulatory system which ideally requires the establishment of an independent agency; Ownership reforms are often associated with a change in the ownership of previously state owned enterprises to some degree or form of private sector ownership. Decentralization in allocation mechanisms: These often play an important role in enhancing the influence of economic forces and the participation of stakeholders in the infrastructure sector. This is generally true for the water sector. Change in regulations: Regulations can often have an adverse impact on welfare. For example, regulation aimed at controlling prices and entry into markets is likely to reduce the average standard of living (Guasch and Hahn, 1997).

There are certain principles which should be followed in changing or introducing new regulations: a) The choice of regulation should be based on cost-benefit analysis. b) Any regulatory policy should have a clear economic rationale. c) Evaluation of the regulation should be done by an independent agency which considers the economy-wide impact and not by a sector-specific agency.
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d) Regulations should be simple and subject to careful scrutiny. These improve accessibility to the public (transparency) and diminish the likelihood of capture by political groups.

Rural infrastructure investment

Figure: 1.3 Rural infrastructure investment

1.5 World level Infrastructure development Organization

MEDCs (More Economically Developed Countries) can give aid to LEDCs (Less Economically Developed Countries). There are several types of aid: Governmental(Bilateral) aid International Organizational (multilateral) aid Voluntary aid Short-term/emergency aid Long-term/sustainable aid

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Aid can be given in several ways. It can be done through money, materials, or skilled and learned people (e.g. teachers). Aid has advantages. Mostly short-term or emergency aid helps people in LEDCs to survive a natural (earthquake, tsunami, volcano eruption etc.) or human (civil war etc.) disaster. Aid helps make the recipient country (the country that receives aid) get more developed. However, aid also has disadvantages. Often aid does not even reach the poorest people. Often money gained from aid is used up to make infrastructures (bridges, roads etc.), which only the rich can use. Also, the recipient country gets more dependant of aid from a donor country (the country giving aid). Organizations African Development Bank Group (AFDB) The African Development Bank is a regional multilateral development bank, engaged in promoting economic and social development in Africa. Its mission is to help reduce poverty, improve living conditions for Africans and mobilize resources for the continents economic and social development. Agence Franaise de Dveloppement (AFD) Agence Franaise de Dveloppement is a bi-lateral development finance institution established in 1941 that works on behalf of the French government. Its mission is to finance development according to Frances Overseas Development Assistance policies. Appropriate Infrastructure Development Group (AIDG) The Appropriate Infrastructure Development Group (AIDG) helps individuals and communities get affordable and environmentally sound access to electricity, sanitation and clean water. Asian Development Bank (ADB) The Asian Development Bank is an international development finance institution whose mission is to help its developing member countries reduce poverty and improve the quality of life of their people. ADBs main partners are governments, the private sector, nongovernment organizations, development agencies, community-based organizations, and foundations.
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Centre for Global Development - "Cash on Delivery": Progress-Based Aid for Education CGD staff is proposing a "cash on delivery" approach to aid, under which donors would pay for measurable progress on specific outcomes pre-agreed with recipient governments. In education, donors could pilot cash on delivery aid by offering a contract to poor countries for $100 per additional child completing a quality primary education, to be used as the country chooses. The approach is also being explored for application by governments to their own transfers to states or districts. Cities Alliance Cities Alliance is a global coalition of cities and their development partners committed to scaling up successful approaches to urban poverty reduction. Community Development Carbon Fund (CDCF) The Community Development Carbon Fund provides carbon finance to projects in the poorer areas of the developing world. The CDCF supports projects that combine community development attributes with emission reductions to create "development plus carbon" credit, and will significantly improve the lives of the poor and their local environment. Education for AllFast Track Initiative (EFA-FTI) The Education for All - Fast-track Initiative (FTI) is a global partnership between donor and developing countries to ensure accelerated progress towards the Millennium Development Goal of universal primary education by 2015. Energy Sector Management Assistance Program (ESMAP) A global technical assistance program which helps build consensus and provides policy advice on sustainable energy development to governments of developing countries and economies in transition. Global Environment Facility (GEF) The Global Environment Facility (GEF) is a global partnership among 178 countries, international institutions, non-governmental organizations (NGOs), and the private sector to address global environmental issues while supporting national sustainable development initiatives.
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Global Facility for Disaster Reduction and Recovery (GFDRR) The Global Facility for Disaster Reduction and Recovery provides technical and financial assistance to high risk low- and middle-income countries to mainstream disaster reduction in national development strategies and plans to achieve the Millennium Development Goals (MDGs). Inter-American Development Bank (IDB) The Inter-American Development Bank is an international organization established to support Latin American and Caribbean economic and social development and regional integration. It lends mainly to governments and government agencies, including State corporations. International Finance Corporation (IFC Advisory site) The International Finance Corporation, a member of the World Bank, provides investments and advisory services to build the private sector in developing countries. IFCs advisory work is organized into five business lines: Business Enabling Environment, Access to Finance, Environmental and Social Sustainability, Infrastructure and Corporate Advice. Marie Stopes International (MSI) Marie Stopes International (MSI) is a not-for-profit sexual and reproductive health organization providing services in 43 countries. Millennium Challenge Corporation (MCC) The Millennium Challenge Corporation (MCC) is a United States Government corporation designed to work with some of the poorest countries in the world. Established in January 2004, MCC is based on the principle that aid is most effective when it reinforces good governance, economic freedom and investments in people. Multilateral Investment Guarantee Agency (MIGA) The Multilateral Investment Guarantee Agency, a member of the World Bank Group, promotes foreign direct investment (FDI) into developing countries to help support economic growth, reduce poverty, and improve people's lives. Organisation for Economic Co-operation and Development (OECD Development issues)
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The Organisation for Economic Co-operation and Development s work activities in development are carried about by the Development Co-operation Directorate/DAC, the Development Centre, the Sahel & West Africa Club/SWAC and the Centre for Cooperation with Non-Members/CCNM. Partnership Dialogue Facility Energy polices for development (EUEI PDF) The Partnership Dialogue Facility Energy Policy aims to support the development of policies and strategies for the promotion of access to energy at national and regional level. These are based on dialogue within and between partner countries, their regional organizations, EU member states and the European Commission. Public-Private Infrastructure Advisory Facility (PPIAF) A multidonor technical assistance facility aimed at helping developing countries improve their infrastructure through private sector involvement. Private Infrastructure Development Group (PIDG) The Private Infrastructure Development Group consists of donors whose mission is to combat poverty and assist developing countries boost their economic development. Results-Based Financing for Health (RBF) Results-Based Financing (RBF) for Health is a tool used for increasing the quantity and quality of health services. It combines the use of incentives for health-related behaviours with a strong focus on results, and can support efforts to achieve the Millennium Development Goals (MDGs). United States Agency for International Development (USAID) The United States Agency for International Development is the government agency providing US economic and humanitarian assistance worldwide for more than 40 years. Water Aid Water Aid is an international charity that promotes clean, safe water and sanitation in Africa and Asia. Their mission is to overcome poverty by enabling the world's poorest people to gain access to safe water, sanitation and hygiene education.

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Water and Sanitation Program (WSP) An international partnership to help the poor gain sustained access to improved water supply and sanitation services. The World Bank The World Bank is a vital source of financial and technical assistance to developing countries around the world. It is made up of two unique development institutions owned by 185 member countriesthe International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). World Bank Institute The World Bank Institute (WBI) is one of the World Banks main instruments for developing individual, organizational, and institutional capacity through the exchange of knowledge among developing countries. WBI designs and delivers learning programs that create opportunities for development stakeholders to acquire, share, and apply global and local knowledge and experiences.

1.6 Conclusion:
Although India has been struggling to keep up with the fast developing infrastructural demands of the businesses, it has shown some signs of progress. The pace at which the government is contracting new road contracts to private investors is phenomenal. Indias telecom industry is highly developed. Cell phone services are available throughout India, even in the far flunked rural villages. The power and aviation sectors have shown similar if not better signs of development. The power providers in many states of India are private vendors. The Delhi and Mumbai airport have been contracted to be modernized by private investors with an investment up to $1 billion. If the government continues to privately contract the infrastructural projects and encourage investment in this long held public sector, then India can expect to continue its phenomenal growth

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Literature Review

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2. Literature Review
2.1 Introduction:
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Indian economy has undergone fundamental changes over the last decade. Growth in investor interest is driven by strong economic growth, rising foreign exchange reserves, quality and cost competitiveness and encouraging Government policy-making. The strong level of economic growth achieved in India in recent years has led to an expansion of industry, commerce and per capita income. This in turn has fuelled demand for infrastructure services including energy, transportation, telecom, water supply and urban infrastructure. The investment in infrastructure in India has increased from 4.9% of the gross domestic product (GDP) in 2002-03 to 7.18% in 2008-09. It is expected to increase to 8.37% in the final year of the 11th Plan and likely to touch 10% of GDP in the 12th Five Year Plan (2012-2017). With increasing investment, the share of private sector in total investment on infrastructure has increased rapidly. The contribution of private sector in total infrastructure investment in each of the first two years of 11th Plan (2007-2012) was around 34%. This is higher than the 11th Plan target of 30%, and 25% achieved in 10th Plan period. It is expected to rise to 36% by end of 11th Plan and 50% during the 12th Plan (2012-2017). The Government initiatives including opening up a number of infrastructure sectors to private players, promoting investment in the sector by permitting FDI, huge spending on projects like the National Highway Development Project, National Maritime Development Programme, etc. have opened up significant opportunities for investors.

2.2 Airport Infrastructure:

In keeping with the ICAO standards and recommended practices and the requirements of upgrading airports to the level of international and regional hubs, detailed master plans for the development of all selected airports will be prepared or revised by the operating agency. Such master plans should be conceived of and executed by the best expert advice available and taking futuristic requirements into account. All future up gradation and modernization will have to be normally done in accordance with the master plans. If there is a deviation from the master plan, it will be approved by the Board of Directors of the operating agency and the statutory Government agency designated for the purpose. Priority will be accorded to safety, passenger facilities, aircraft and cargo handling, while deciding the allotment of funds among different up gradation and modernization schemes. Air transport serves a time-sensitive market. The surface access to airports should therefore be efficient and city planners should keep the airport-linked requirements constantly in view while designing surface transport development plans. There is a special need to emphasize the aspect of rail links with airports, in view of its near absence in India as contrasted with other countries. The helicopter provides a direct and rapid means of transport over short-haul routes and is therefore, particularly attractive for businessmen. There is also a great potential for helicopter operations in off-shore oil exploration and production, movement of food grains and essential commodities in remote, hilly and inaccessible areas, traffic management in metropolitan cities and so on. A planned
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programme for building of heliports will be taken up to give a boost to the helicopter industry. Role of Airport of Infrastructure in National Economy: Airports being nuclei of economic activity assume a significant role in the national economy. The quality of airport infrastructure, which is a vital component of the overall transportation network, contributes directly to a country's international competitiveness and the flow of foreign investment. While cargo carried by air in India weighs less than 1% of the total cargo exported, it accounts for 35% of the total value of exports. Better cargo handling facilities lead to enhanced levels of importation, especially of capital goods and high-value items. Likewise, 97% of the country's foreign tourists arrive by air and tourism is the nation's second largest foreign exchange earner. Airports also represent a countrys window on the world. Passengers form their first impressions about a nation from the state of its airports. They can be effectively used as symbols of national pride, if we pay sufficient attention to their quality and maintenance. In many remote, hilly and inaccessible areas of the country, air transport is the quickest and sometimes the only mode of travel available. This is especially true of sensitive regions on the borders with our neighbours in the west, north and north-east. Airports need to be integrated with other modes of transport like Railways and Highways, enabling seamless transportation to all parts of the country. Airports are presently classified in the following manner: 1. International Airports: These are declared as international airports and are available for scheduled international operations by Indian and foreign carriers. Presently, Mumbai, Delhi, Chennai, Calcutta and Thiruvananthapuram are in this category.
2. Custom Airports: These have customs and immigration facilities for limited

international operations by national carriers and for foreign tourist and cargo charter flights. These include Bangalore, Hyderabad, Ahmadabad, Calicut, Goa, Varanasi, Patna, Agra, Jaipur, Amritsar and Tiruchirapally.
3. Model Airports: These are domestic airports which have minimum runway length of

7500 feet and adequate terminal capacity to handle Airbus 320 type of aircraft. These can cater to limited international traffic, if required. These include Lucknow, Bhubaneshwar, Guwahati, Nagpur, Vadodara, Coimbatore, Imphal and Indore.
4. Other Domestic Airports: All other airports are covered in this category.

5. Civil Enclaves in Defence Airport: There are 28 civil enclaves in Defence airfields.

Existing Scenario:

26

Of a total number of 454 airports and airstrips in India, 16 are designated as international airports. The Airports Authority of India (AAI) owns and operates 97 airports. A recent report by Centre for Asia Pacific Aviation (CAPA) states that over the next 12 years, India's Civil Aviation Ministry aims at 500 operational airports. The Government aims to attract private investment in aviation infrastructure. India has been witnessing a very strong phase of development in the past few years. Many domestic as well as international players are showing interest in the growth and development of the aviation sector with immense focus on the development of the airports. With the opening up of the domestic skies to private carrier in the second half of the Tenth Plan, air services have become affordable and are now competing with other modes of transport. Propelled by economic growth and liberalization, the sector experienced an unprecedented growth during the Tenth Plan, especially during the last three years. Indian private airlines Kingfisher, Jet, Indigo, Spice jet, Go Air, Paramount - account for around 84% of the domestic passenger traffic. Some have now started international flights. For the next years to come India is poised with strong focus on the development of its airports to meet the international standards. The government is planning modernization of the airports to establish a standard. The newly developed airports will help releasing pressure on the existing airport in the country. The passenger traffic has grown tremendously during the last five years. It has grown from 5.92 crores in 2004-05 to 11.68 crores in 2007-08 showing an overall growth (CAGR) of 25%. The main factors contributing to this growth include the growth of the economy, falling fares, and increasing capacities of domestic private airlines. Notwithstanding the slowdown in the year 2008-09 and in the current year, the passenger traffic over the next 12 yrs is expected to grow from 11.97 crores in 2010-11 to reach 31.66 crores by 2022-23 with a growth (CAGR) rate of 8.44%.

Figure: 2.1 Growth of Air Passenger Traffic

27

Keeping with the growth of the Air Passenger Traffic the fleet size also grown (CAGR) at 28.74% during the period 2004-05 to 2006-07 from 184 aircrafts to 305 aircrafts. As of August 2009 the fleet size has crossed 400. Private sector is planning to add another 258 aircrafts in the near future. According to projections made by Boeing, over the next 20 years (2029-30), the Indian market would require 1,000 commercial jets valued at approximately $100 billion.

Figure: 2.2 Growth of Fleet

Market Share of Private Sector in Domestic Traffic: The private sector is now playing a crucial role in the development of both airline and airport sector. Its market share in the domestic traffic as on March 2009 reached 84%. Kingfisher Airlines has emerged as the market leader with a share of 27%. The details of domestic market share of Indian air carriers by passengers carried as of March 2009 are given below.

28

Figure: 2.3 Market Shares of Indian Air Carriers

2.3 Infrastructure Policy in India (Airport Sector)

Role of Airport of Infrastructure in National Economy: Airports being nuclei of economic activity assume a significant role in the national economy. The quality of airport infrastructure, which is a vital component of the overall transportation network, contributes directly to a country's international competitiveness and the flow of foreign investment. While cargo carried by air in India weighs less than 1% of the total cargo exported, it accounts for 35% of the total value of exports. Better cargo handling facilities lead to enhanced levels of importation, especially of capital goods and high-value items. Likewise, 97% of the country's foreign tourists arrive by air and tourism is the nation's second largest foreign exchange earner. Airports also represent a countrys window on the world. Passengers form their first impressions about a nation from the state of its airports. They can be effectively used as symbols of national pride, if we pay sufficient attention to their quality and maintenance. In many remote, hilly and inaccessible areas of the country, air transport is the quickest and sometimes the only mode of travel available. This is especially true of sensitive regions on the borders with our neighbours in the west, north and northeast. Airports need to be integrated with other modes of transport like Railways and Highways, enabling seamless transportation to all parts of the country.

Objectives of Policy: While the Government is separately developing a policy framework for the entire civil aviation sector, this policy relates to use and development of airport infrastructure. The Policy on Airport Infrastructure should always be read along with the National Policy uncivil Aviation.
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The objectives of the policy are:

1. To provide a boost to international trade and tourism and enhance the countrys

image in the comity of nations;

2. To provide airport capacity ahead of demand, in order to handle an increasing

volume of air traffic and to garner the maximum share of traffic in the region;
3. To enhance airport facilities to make the airport user friendly and achieve higher

level of customer satisfaction.

4. To ensure total safety and security of aircraft operations by the introduction of

state-of-art air traffic, security and related services; 5. To provide multi-modal linkages;
6. To provide a market orientation to the present structure, bridge the resource gap

and encourage greater efficiency and enterprise in the operation of airports, through the introduction of private capital and management skills;
7. To foster the development of a strong airport infrastructure, maintaining a

balance between the need for economic viability and the objective of equitable regional dispersal of infrastructural facilities; 8. In the achievement of the above objective, to lay special emphasis on the development of infrastructure for remote and inaccessible areas, especially the North East, the hilly and island regions; and 9. To encourage transparency and clarity in the decision-making processes of Government and its public sector units. Financing of Airport Infrastructure: 1. It has to be appreciated at the outset that financing of airport infrastructure has some inherent problems. These projects have a large element of sunk cost, a very long gestation period and highly uncertain returns on investment based on several assumptions of traffic growth that may fail to materialize.
2. The current pattern of financing is predominantly based on internally generated

resources of the AAI. Funding through external assistance, external commercial borrowings, loans and equity has been negligible. The allocation of budgetary grants is limited to certain airports in remote and inaccessible areas. Considering the astronomical sums which seem to be required for modernization and upgradation of existing airports and for the new airports at Mumbai (Rs.10, 000 crores), Bangalore (Rs.1,600 crores) etc., there has to be a clear privatisation of projects so as to utilize state resources in the most optimal manner. Further, the financing strategies will have to be looked at from a thoroughly novel standpoint. 3. Taking the internal resources first, the following steps will be initiated:
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a) Optimization of revenue from aeronautical charges, through negotiation with IATA and keeping Government approvals in view. b) A revolutionary thrust towards rising of revenue from non-aeronautical commercial sources. c) Rationalisation and optimisation of various charges like passenger service fee, user development charges, aerobridge charges, etc. and imposition of new levies like security charges, fuel throughput charges etc. d) Massive economy in expenditure by manpower optimization, cost reduction, elimination of duplication, increased productivity, contracting out of services, etc. e) Greater resource to additional sources like external assistance, public bonds, external commercial borrowings, public issues, loans from Government/financial institutions etc. 1. Currently, the revenue from the taxes imposed in the aviation sector in the shape of IATT and FTT is credited to the Consolidated Fund of India, with only 10% of FTT being given to the AAI. Even this 10% IS NOW SOUGHT TO BE TAKEN BACK. Taking into account the vast sums required for infrastructural development, there is a strong case for conversion of these taxes into a common Civil Aviation Cess, the proceeds of which should be credited to a National Civil Aviation Fund to be operated by the Ministry of Civil Aviation. 2. There has to be a general appreciation about the needs of the airport infrastructure sector and the plan allocations to the AAI need a hefty increase. 3. There is, at present, some money flowing to the AAI for construction of airports in remote and inaccessible areas. This money, which was available, till recently as grant, is now sought to be converted into a loan. It should continue to be given as grant-in-aid. 4. A general policy decision needs to be taken that the AAI will only invest in projects with demonstrated economic viability and positive rate of return. Wherever Government compels AAI to invest in non-viable projects for the fulfilment of social objectives, the initial capital cost of the project and the recurring annual loss sustained by the AAI on this account will be reimbursed. 5. There will also be need for commercialization of marginal or loss-making airports by transferring them to private companies, State Governments, urban local bodies etc. for operation and management under negotiated terms and conditions. Some of the guidelines may need to be modified in order to make the operations costeffective. Facilities could be allowed to be commercially exploited even outside operational hours, meeting minimum security requirements. 6. In the final analysis, looking at the quantum of investment required, the answer to all the problems lies in the infusion of private (including foreign), investment in this
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sector. This needs to be encouraged by adopting a flexible and positive attitude towards such proposed ventures. The possibility of international aid and cooperation for building of new airports or for modernization and up gradation of existing ones will be seriously explored. 7. The truth of the matter is that public funds for development of airports are getting more and scarcer and private sector involvement has, therefore, got to grow. There is a definite worldwide movement from monopoly state ownership of airports to corporatization, in the first phase, with the final aim of privatization of ownership and management. India has to be a part of this global transition.

2.4

11th Five Year Plan target for airport sector:

The 11th Five Year Plan would lay emphasis on provision of infrastructure facilities at a much faster pace. The restructuring of Delhi and Mumbai airports is now underway and their modernization is expected to be completed by 2010. Chennai and Kolkata will be developed next along lines that will incorporate lessons gained during award of contracts for Delhi and Mumbai airports. The Greenfield airports in Bangalore and Hyderabad are already well on their way to commissioning. In order to meet the growth of traffic, Greenfield airports would also be developed in other selected cities. In addition, 35 nonmetro airports would be taken up for development by Airport Authority of India making use of both in-house capacity and public private partnership. Development of Aeronautical Communication Navigational Surveillance and Traffic Management (CNS-ATM) services would be taken up on priority to improve the productivity and efficiency of airlines and airport operators. The performance of regulatory agencies such as immigration and customs would be improved by streamlining the procedure, training of staff, and use of IT.

Overview: Air transport is the preferred mode of transport especially for long-distance travel, business travel, accessing difficult terrains, and for transporting highvalue and perishable commodities mainly on account of the speed of travel and saving of time. With the opening up of domestic skies to private carriers in the second half of the Tenth Plan, air services have become affordable and are now effectively competing with other modes of transport. Propelled by growth of the economy and liberalization, the sector experienced an unprecedented growth during the Tenth Plan, accelerating particularly in its last three years. Review of the tenth plan: During the Tenth Plan an outlay of Rs 12928.00 crore was provided to the Ministry of Civil Aviation (MoCA), out of which Rs 7792.09 crore or 60% of the outlay was spent by them. However, against a sum of Rs 672.73 crore provided as GBS, the expenditure incurred was to the tune of Rs 546.10 crore or 81%.
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Important developments in the airline and airport sector included: (i) modernization and restructuring of Delhi and Mumbai airports launched through JV companies; (ii) development of Greenfield air-ports at Bangalore and Hyderabad on a Build Own OperateTransfer basis with PPP; (iii) approval of modernization of 35 non-metro airports and 13 other airports to world-class standards in phases; (iv) liberalization of FDI limit upto 100% through automatic route for setting up Greenfield airports; (v) acquisition of modern and technologically advanced aircraft for Air India (AI) Ltd, Air India Charters Ltd (AICL), and Indian Airlines Ltd; (vi) liberalization of bilateral air services agreement in line with the contemporary developments in international civil aviation sector; (vii) adoption of a limited Open Sky Policy in international travel to meet the traffic demand during peak season; and (viii) adoption of trade facilitation measures in custom procedures to facilitate speedy clearance of air cargo.

Eleventh plan:
Objectives: The main objectives of the Civil Aviation Sector for the Eleventh Plan would be to provide :
(i) (ii) (iii)

World class infrastructure facilities. Safe, reliable, and affordable air services so as to encourage growth in passenger and cargo traffic. Air connectivity to remote and inaccessible areas with special reference to north eastern part of the country.

Strategies: The realization of above objectives would call for capacity building that will include modernization and expansion of major international and domestic airports, construction of new Greenfield airports including that of the NER, enhancement of cargo handling facilities at all airports, and upgradation/modernization of Air Traffic Management (ATM) System. Similarly, in the airline sector, acquisition of modern fuel-efficient aircraft fitted with the latest equipment would be encouraged. The capacity building process in both airlines and airports would be mainly through increased private sector participation. While a decision has been taken to modernize the non-metro airports through the Airports Authority of India (AAI), the city side development at these airports would be done through PPP. Two major metro airports (Delhi and Mumbai) and two Greenfield airports (Bangalore and Hyderabad), which would be completed during the Eleventh Plan, are already being developed through PPP. A similar strategy is envisaged for the Navi Mumbai airport for which in-principle clearance has been given. While the existing airports at Kolkata and Chennai would be developed by AAI, the Greenfield airports at these locations will need to be taken up through PPP.
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Traffic Projections: Both domestic and international traffic witnessed a boom during the last three years of the Tenth Plan that is 200405, 200506, and 200607, with growth in passenger traffic of 21.5%, 23.7%, and 31.38%, respectively, resulting in overall growth (CAGR) of 19.23% (13.58% in international passenger and 21.78% in domestic traffic) during the Tenth Plan. The main factors contributing to this growth include the growth of the economy, falling fares, and increasing capacities of domestic private airlines. It is estimated that international and domestic passengers are forecast to grow at the rate of 15.9% and 19.9%, respectively, resulting in overall increase of 18.8% during the Eleventh Plan. All the Indian airports taken together, passenger traffic is forecasted at 2054.00 lakh (540.37 lakh international and 1513.63 lakh domestic passengers) and cargo traffic at 2683.47 thousand metric tonnes (TMTs) (1822.69 TMTs international and 860.78 TMTs domestic cargo) by 201112. Additional capacities of about 296.95 lakh international and 1035.74 lakh domestic passengers would require to be created at 45 major airports by 201112, as the total international passengers and domestic passengers projected would be 539.39 lakh and 1489.70 lakh, respectively. Similarly, during the Tenth Plan, cargo traffic grew (CAGR) by 12.70% (12.75% international and 12.61% domestic cargo). During the Eleventh Plan, international and domestic cargo traffic is expected to grow at the rate of 12.1% and 10.1%, respectively, resulting in overall increase of 11.4%. To take care of above growth in respect of cargo terminal, additional capacity would require to be created to the tune of 800.00 TMTs of international cargo traffic and about 300.00 TMTs of domestic cargo traffic by 201112. New initiatives: In order to sustain the spectacular growth registered by the civil aviation sector in the last few years through the Eleventh Plan, the following initiatives have been taken: Model Concession Agreement (MCA) is being evolved to help attract private investments and also facilitate smooth execution of air transport projects. Airports Economic Regulatory Authority (AERA) is being established in order to create a level playing field and healthy competition amongst all major airports (handling more than 1.5 million passenger per annum); encourage investment in airport facilities; regulate tariffs of aeronautical services; protect reasonable interest of users; and operate efficient, economic, and viable airports. Merger of AI and Indian Airlines to optimize fleet acquisition, to leverage the asset base, to strengthen the network, and to achieve economy of scale, with estimated cost and synergy benefits (net) of Rs 600.00 crore at the end of the third year of merger. Organizations of ministry of civil aviation (MOCA): Air India (AI)
34

During the Tenth Plan, AI Ltd has incurred an expenditure of Rs 2388.27 crore as against the approved outlay of Rs 2661.39 crore, which works out to about 90% of the approved outlay. The shortfall was mainly due to appreciation of Indian rupee and deferment of non-aircraft capital expenditure to subsequent years due to resource constraints. The financial performance of AI during the Tenth Plan is given in table below. The net profit of AI Ltd has declined from Rs 133.86 crore during 200203 to Rs 12.50 crore during 200607 due to its fall in share of the traffic due to increased competition. Absence of an adequate fleet of new aircrafts was a major contributory factor for the decline in competitiveness of the airline. AI has been successful in increasing its capacity as is evident from Table given below. During the Eleventh Plan, AI Ltd would acquire 50 new long-range aircrafts comprising 8 Boeing 7772000 LR, 15 Boeing 777300 ER, and 27 Boeing 787 aircraft. With these acquisitions, its targeted capacity would increase to 10484 million in terms of available tonne kilometres (ATKMs) and 7092 million in terms of revenue tonne kilometres (RTKMs) by the end of the Eleventh Plan.

Table: 2.1 Financial Performance of Air India

Growth in Capacity & Traffic During the Tenth Plan (in million)

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Table: 2.2 Growth in Capacity & Traffic During the Tenth Plan

Indian Airlines: During the Tenth Plan, Indian Airlines could spend only Rs 1431.54 crore as against the approved outlay of Rs 4240.50 crore, a shortfall of 66%, mainly attributed to the appreciation of Indian rupee, less outgo towards new aircraft project, and taking up of operationally essential projects only under other supporting facilities on account of resource constraint. Indian Airlines has improved its financial performance as given in Table given below.

Airports Authority of India (AAI): Against the approved budget of Rs 5404.21 crore including budgetary support of Rs 250 crore, AAI spent Rs 3534.62 crore including budgetary support of Rs 150.67 crore during the Tenth Plan. The shortfall in expenditure of 35% was mainly due to deferment of projects at Delhi and Mumbai airports due to their restructuring through PPP, delay in finalization of certain projects for non-metro airports, and delay in procurement of communication/surveillance and distance measuring equipment. The net profit of AAI has increased from Rs 282.05 crore during 200203 to Rs 793.71 crore during 200607, thus earning an appreciable total profit of Rs 2433.71 crore during the Tenth Plan, as indicated in Table given below.

FINANCIAL PERFORMANCE OF AIRPORTS AUTHORITY OF INDIA

S. No. 1 Total revenue 2002-03 2384.49
36

2003-04 2630.59

2004-05 2999.65

2005-06 2490.46

2006-07 3431.86

2 3 4 5

Total expenses Net profit/loss before tax Provision for tax Profit after Tax

1887.44 497.05 215.00 282.05

3086.63 543.96 229.00 314.96

2314.85 684.82 359.45 325.37

2281.85 1208.61 490.99 717.62

1948.15 1483.71 690.00 793.71

Table: 2.3 Financial performance of airports Authority of India Pawan Hans Helicopters Ltd (PHHL): PHHL has incurred an expenditure of Rs 281.95 crore as against an approved outlay of Rs 458.90 crore, which is 61% of approved outlay for the Tenth Plan. The shortfall was due to delay in acquisition of new helicopters. Hotel Corporation of India (HCI): An outlay of Rs 15.00 crore was approved for HCI during the Tenth Plan, against which the expenditure incurred was Rs 26.27 crore, or 75% more than the allocation, mainly on the maintenance and operation of hotels due to delay in their disinvestment. Outlay for the eleventh plan: The total projected outlay for the Eleventh Plan for MoCA is Rs 43560 crore at 200607 price (Rs 49267 crore at current price) which includes Rs 1680 crore of GBS at 200607 price (Rs 1900 crore at current price). The scheme-wise break up of GBS at current prices is given in the Appendix (Volume III). In addition, the sector is expected to generate private sector investment of Rs 93493 crore during this period. The IEBR may go up by Rs 2226.68 crore at 200607 prices on account of higher generation and utilization by AAI to fund their projects. 2.5 STATE LEVEL INFRASTRUCTURE India Airport Description of activity Level of investment Notes/comments

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Navi Mumbai

The government approved the construction of the INR150 billion (USD3.3 billion) and muchdelayed Navi Mumbai Airport Environment Minister Jairim Ramesh said "the environmental clearance for this project has been accorded", adding that the "provisions of building the airport can start today. Details of the proposed airport and the approval are as follows:

USD3.3 billion

PPP project. Environmental clearance awarded but still subject to potential delays/challenges from residents, other ministries etc.

Capacity of 20 million passengers p/a when phase one is completed by 2015/16. It will subsequently be expanded to handle 60 million passengers; Ownership structure: A private partner will hold a 74% stake and AAI will have a 26% stake. Government has until end2011 to select a private partner; Size and scope: Will be developed on 1140ha of which more than 70% has been acquired. The area is 30km south-east of Mumbai International Airport; Infrastructure: Several major infrastructure projects are expected to be developed around the airport, including the construction of a transharbour freeway linking Sewri in Mumbai to Nhava-Sheva. Other plans
38

GVK, the major private sector operator at Mumbai Airport has right of first refusal on Navi Mumbai within 5% of the winning bid.

Tender expected to be ready by Apr/May2011.

include constructing metro routes, railway lines and additional freeways and expressways.

Greater Noida (Delhi)

A proposed PPP greenfield airport to act as the second airport for Delhi in the same manner as Navi Mumbai. The airport, slated to be named as Taj International Aviation Hub, would be constructed on 1500ha near Greater Noida, in Uttar Pradesh USD1.1 billion state, 70km from the capital and towards the Taj Mahal at Agra. Delhi Airport recently inaugurated T3, which it argues ensures there is no shortage of capacity for the national capital. Airports Authority of India (AAI) is modernising the airport, to cater Estimated cost for the estimated 27.6 million USD435 million. passengers at Chennai Airport by 2020. Plans include the construction of a domestic terminal and cargo complex, the extension of the international terminal and second runway and the construction of a multi-level car park. However, authorities are
39

Political opposition continues. GMR, the main private sector operator of Delhi Airport, has objected that this airport is counter to the terms of its concession agreement which states that no new airport will be developed within 150km. The modernisation of the airport is an AAI initiative, however a greenfield airport would likely be developed on a PPP basis.

Chennai (Madras)

also working towards a greenfield second airport.

Kochi (Cochin), Kerala

Kochi Airport will invest INR1.2 billion (USD26.5 million) in expansion plans and commence discussions with its major airlines. USD26.5 million The airport also hopes some of the carriers operating will base aircraft there. A new international airport in Kerala, the fourth in the state. The project will be completed under a private-public initiative and will be modelled on the Cochin International Airport ownership model. Kerala Government will hold a 26% stake in the airport while public sector units will hold 23%, Infrastructure Kerala Limited, a recently floated government-private JV, will hold 2% and private investors will own USD216 million a 49% stake. The airport will handle nearly 1.5 million passengers and 86,000 tonnes of cargo p/a once in operation. Construction commenced on more than 850ha on 17- Dec-2010 and completion is expected within two years. International airports in Kerala include Thiruvananthapuram, Kozhikode and Cochin.

A railway station will also be constructed with the airport requesting the proposed Metro Rail be extended.

Kannur, Kerala

Indias Kerala Chief Minister stated that "big sharks" will not be able to acquire large ownership positions in Kannur Airport. Some 49% of the airport's shares have been allocated for private individuals. The comments followed reports that Leela Hotel Group and Infrastructure Leasing and Financial Services Limited (IL&FS) were considering a major stake.

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The state has gained environmental clearance to construct a USD72 million greenfield airport at Shirdi. According to the citys proposal, it Shirdi, will have a 3200m by 45m runway USD72 million Maharashtra capable of handling all narrowbodies, a terminal building, ATC tower, airfield ground lighting, apron, cargo and maintenance hangars. The first international airport in the state will be constructed near Shimla under the PPP model at an initial cost of INR10 billion (USD226 million). Land for the USD226 million purpose has been identified at three locations in Shimla and Solan districts and a final decision will be taken soon.

Shimla, Himachal Pradesh

The government is preparing to appoint consultants to prepare the master plan for the PPP greenfield Mopa (Goa) project and provide a feasibility Estimated report. The project is expected to USD200 million be completed in five to six years. Site approved by ICAO. The proposed Kushingar Airport has received the final no-objection certificate (NOC) from the Indian Estimated INR8.29 Government. The airport Kushinagar billion (USD180 management has already acquired million) a significant piece of land. It will have the capacity to handle one million passengers per annum.

Strongly opposed by farming community. Existing Dabolim Airport will remain open

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Aranmula

KGS Developers obtained clearance to construct a USD433 million private greenfield airport in Aranmula. KGS has acquired 140 of the 200ha required to date and has completed a 2600m runway. Domestic services are expected to commence in 2012. In Phase one, the runway, taxiway, aprons, an isolation bay and a USD430 million terminal building will be (total development constructed, with the runway to be cost) extended to 3600m in the following year to enable international operations. Nonaeronautical developments, such as the construction of hotels, a shopping mall and an aviation academy, are also part of the master plan.

Andaman & There are broad plans to build new Nicobar Not known (small) airports on the islands. Islands BIAL has invited EoIs for the expansion of the existing terminal. The T1 project is expected to take 18 months to complete and will increase passenger capacity from 10.6 million to 17 million by 2015. The T1 expansion would cost an USD220 million estimated USD219 million, with funding to be in a 70:30 debt:equity ratio. The expansion will almost double the passenger side capacity of the airport to 134,000sqm.

Bangalore Airport (BIAL)

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Karnataka

Government of Karnataka signed a project development agreement with MARG for the construction of Bellary Airport. The greenfield airport project is to be constructed over 364ha, with MARG developing and operating the airport, on a build operate transfer USD50 million (BOT) basis. The timeframe for completion is 30 months, with MARG planning to invest USD50 million in the project. In the initial phase, the airport will have capacity to handle smaller capacity aircraft, with this to increase in phase two of the project. Pakyong in Sikkim;

One of five new greenfield airports in the province, the others are at Bijapur, Hassan, Shimoga and Gulbarga, all under PPP BOT terms.

USD56.6 million; Three north Itanagar (Tezu Airport) in eastern Nagaland to be completed by Mar- USD16.9 million; greenfield 2012; airports Not known Cheithu in Nagaland The potential development of a private airport in Pune is being considered as a serious option, according to Maharashtra officials. Not known The state has appointed Maharashtra Airport Development Company as a special planning authority for the project.

Pune

Table: 2.4 State Level Infrastructure

2.6 PUBLIC PRIVATE PARTNERSHIP IN INFRASTRUCTURE DEVELOPMENT

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Funding India's wide-ranging, US$1 trillion programme of infrastructure expansion over this five-year period is likely to be beyond the means of total government funding, so policies have been designed to facilitate private investment to the maximum level possible. If the Indian Government's targeted level of private sector involvement and investment are met (approximately 30%), the quantum of funding required would be around US$300 billion - dwarfing the investment achieved over the past decade by comparison. Achieving this level of investment is ambitious. Several frameworks and plans are already in place, however, that may facilitate reaching these goals. The PPP/PFI market in India is still at a relatively early stage. However, over the past decade or so, there has been an increasing trend at the central as well as state government level to use PPPs for meeting critical infrastructure gaps. The results have been quite encouraging. Establishing a PPP is now considered to be the default option for major infrastructure projects in sectors such as roads, railways, airports, ports and other transport segments. First preference will be given to the PPP model, and only in cases where projects are expected to fail to attract private sector interest will more traditional models be considered. India has become an attractive PPP market and its attractiveness is likely to increase in the future. Contractors able to negotiate and partner with the relevant ministries should find excellent opportunities, particularly companies with a longer-term view.

Figure: 2.4 India public-private investment in infrastructure

2.7 ECONOMIC INDICATOR OF INFRASTRUCTURE:

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An economic indicator (or business indicator) is a statistic about the economy. Economic indicators allow analysis of economic performance and predictions of future performance. The following are some of the important economic indicators: AIR TRAFFIC DEVELOPMENT Latest data from the Indian DGCA (Directorate General of Civil Aviation) confirms that Indias domestic air travel market continued to show impressive growth in the second quarter of 2011, with passenger numbers up 15% to 15.31 million passengers.

Source: Airports Authority of India, DGCA Figure: 2.5 Indian Domestic air traffic Development

Figures from the Airports Authority of India show that international traffic passing through the countrys airports rose by 9.4% in the second quarter of 2011. The international market has been extremely robust in recent years with year-on-year traffic decline occurring just twice since the beginning of 2007; in February and March 2009.

45

Source: Airports Authority of India Figure: 2.6 Indian International air traffic Development

FOREIGN DIRECT INVESTMENT Economic policymakers in most countries go out of their way to attract foreign direct investment (FDI). A high level of FDI inflows is an affirmation of the economic policies that the policymakers have been implementing as well as a stamp of approval of the future economic health of that particular country. There is clearly an intense global competition for FDI. India, for its part, has set up the India Brand Equity Foundation to try and attract that elusive FDI dollar.

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Comparative Inward FDI

Source: EIU (2010) Table: 2.5 Comparative Inward FDI 2.8 FDI & THE REGULATORY ENVIRONMENT During 2009-2010, foreign exchange reserves increased by US$ 31.5 billion from US$ 252.0 billion at the end of March 2009 to US$ 283.5 billion at the end of January 2010, demonstrating that India is emerging as a preferred destination for foreign investors. Major infrastructure development requires a substantial influx of investment capital. The policies of the Indian Government seek to encourage investments in domestic infrastructure from both local and foreign private capital. According to the ATK earney 2010 FDI Confidence Index (a regular assessment of senior executive sentiment at the world's largest companies), India was rated the third most attractive location (after China & the US) for global FDI. Currently, India has FDI of about US$35 billion per year which is the target set by the government for 2009, having in previous years fallen short of targets due to the economic downturn. In order to increase FDI inflows further, particularly with a view to catalysing investment and enhancing infrastructure, the Indian Government has introduced significant policy reforms such as.

It now permits 100% FDI under the automatic route for a broad range of sectors where only certain post-investment intimation is required. These include Greenfield airports, construction & maintenance of infrastructure like ports, harbours, roads and
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highways, power generation, transmission and distribution and power trading, mass rapid transport systems, townships, housing, built-up infrastructure and constructiondevelopment projects. Prior approval is still required for FDI in a few sectors such as existing airports and atomic minerals but this would typically take 6-8 weeks. The Indian Government continues to simplify the approval route process, including setting up several agencies to expedite FDI approval.

From an exchange control perspective, India is moving towards full current account convertibility. Most revenue transactions are freely permitted, except certain transactions like royalty, consultancy fees which are subject to certain limits. Capital account transactions need prior approval, except where specifically permitted. In order to promote the construction sector, the Indian Government has relaxed some of the exchange control restrictions and is now allowing foreign nationals/citizens to acquire immovable property in India, subject to certain conditions and procedures. To encourage funding to the infrastructure sector, the Reserve Bank of India has introduced a new category of Non Banking Financial Company ('NBFC') as Infrastructure Finance Company ('IFCs'). An NBFC, to qualify as IFC, is required to fulfill certain criteria with respect to minimum total assets deployed in infrastructure loans, minimum net owned funds of INR 300 crores, minimum credit rating, capital adequacy ratio etc. The prudent norms on credit concentration, applicable to an IFC, are less stringent and also, low risk exposures and higher lending limits granted to the banks financing such IFCs, gives flexibility to tap funds from banking institutions for on lending to the infrastructure sector. Further, amongst NBFCs only IFCs can avail External Commercial Borrowings ('ECBs') for on-lending under the automatic route. Hurdles to investment remain. Although India has a well-developed legal system, the current legal and regulatory environment sometimes acts as an obstacle to the necessary injections of foreign private capital into India's infrastructure. Major infrastructure projects are governed by the concession agreements signed between public authorities and private entities. Tariff determination and the setting of performance standards vary somewhat by sector. In the roads and highways sector, the ministry generally sets tolls, whereas in major ports projects, and many of those in electricity generation, an independent regulator will decide relevant tariffs. In the airport sector, a new independent regulator, Airports Economic Regulatory Authority, has been set up which is likely to play a major role in determining tariffs in concession agreements for the segment. In some instances, ministry or regulator control over potential proceeds can act as a disincentive to the private infrastructure developer. As is the case in many countries, there is no single regulator which formulates the policy for all infrastructure projects. There is also no standardization in the concession agreements across the different infrastructure sectors. As a result, the development of certain sectors in India may be hampered due to lack of adequate and co-ordinate planning. Projects which are approved may face difficulties if related projects are substantially delayed. FDI for key infrastructure sectors
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Mass Rapid Transport System FDI up to 100% is allowed under the automatic route in mass rapid transport systems, including associated commercial development of real estate, in all metropolitan cities. Ports and Harbours Up to 100% FDI is allowed through the automatic route for leasing of existing assets of ports, construction and maintenance of assets, leasing of equipment for port handling and leasing of floating crafts and captive facilities for port based industries. Power FDI up to 100% is permitted in the power sector under the automatic route for projects relating to the generation, transmission, distribution and trading of power, other than the generation, transmission and distribution of electricity in atomic reactor power plants. Transport and Transport Support Services 100% FDI is permitted under the automatic route for:

Pipeline transport, ocean and water transport, inland water transport Transport support services.

Urban and Rural Infrastructure 100% FDI is permitted under the automatic route in construction and maintenance of:

Roads, rail-beds, bridges, tunnels, pipelines, ropeways, runways, waterways and water reservoirs, hydroelectric projects, power plants and industrial plants; Roads and highways offered on a Built, Own and Transfer (BOT) basis including collection of toll; Rural drinking water supply projects, package water treatment plants, rain and rain water harvesting structures, waste-water recycling and re-use techniques and facilities, rain-water re-charging and re-use techniques of ground water.

2.9 FIGURE OVERALL INVESTMENT India investment in infrastructure:

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The planning commission in India has projected infrastructure investment to the tune of 20,01.776 crore over the eleventh five year plan 2007-2012.

Figure: 2.7 Indian investments in infrastructure

Infrastructure Investment to be INR 62 Trn by 2020

Figure: 2.8 Infrastructure Investment to be INR 62 Trn by 2020

2.10 Infrastructure Financing in India

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In the years 2002-03, 2003-04 and 2004-05, the aircraft movement at the 126 airports managed by AAI increased by 10%, 13.5% and 12.6% respectively; passenger movement by 9.96%, 10.69% and 21.6% respectively; and cargo movement by 15%, 8.75% and 19.9% respectively. Passenger traffic trends and forecasts for the Metro Airports at Delhi, Mumbai, Bangalore, Hyderabad, Chennai and Kolkata . These airports are being/ to be developed through Public Private Partnerships (PPPs). In addition, thirty five non-metro airports have been proposed for development by AAI. The Government is committed to policies that ensure time bound creation of world class airports and for this purpose to evolve a suitable policy and regulatory framework for Public Private Partnerships (PPPs) aimed at maximizing capital inflows and efficiencies. The Committee on Infrastructure (CoI) in its first meeting held on 10.12.2004 mandated that a framework for airport development up to 2010 would be planned assuming an annual traffic growth of 16%. The broad contours of the airport development programmed, as presented to the Committee on Infrastructure, are as given in Table 2.7. Airports Authority has taken up the modernization of Delhi and Mumbai airports by adopting the Joint Venture route, wherein a Joint Venture Company (JVC) has been formed with 74% private equity stake and 26% equity stake of AAI. The maximum equity contribution by AAI would be Rs. 500 crore for each airport. The Delhi and Mumbai airports have been transferred to the JVC. Kolkata & Chennai airports would also be modernized through a suitable model. In the third meeting of the Empowered Sub-Committee of the Committee on Infrastructure held on October 3, 2005, it was decided to set up a Task Force headed by Shri Anwar ul Hoda, Member, Planning Commission and comprising representatives of Ministry of Civil Aviation, Department of Economic. Airport development programmed presented to CoI (Rs. in crore) Particulars Restructuring / Modernization for world class airports Greenfield airports Airport Delhi & Mumbai Chennai & Kolkata Bangalore, Hyderabad, Goa, Pune, Navi Mumbai, Nagpur (Hub) & Greater Noida Indicative Cost 15,000 5,000

10,000

Upgradation Modernization / Improvement

25 selected airports 55 airports

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7,000 3,000

Total investment by 2010

40,000

Table: 2.6 Airport Development Programmed Presented To Coi

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Capex for Delhi and Mumbai airports The development plans for Delhi and Mumbai airports envisage an investment of Rs. 5,270 crore and Rs. 6,130 crore respectively (totaling Rs.11,400 crore) during the period 2006-07 to 2013-14. Capex for Kolkata and Chennai airports The expenditure on these two airports has been considered at 50% of the expenditure of Delhi and Mumbai airports i.e. Rs. 5,700 crore, to be spent during the period 2008-09 to 2013-14. Capex for Greenfield airports The following Greenfield airports projects have been tentatively identified: a) Bangalore b) Hyderabad c) Goa d) Navi Mumbai e) Pune f) Greater Noida g) Kannur The Greenfield Projects at Bangalore and Hyderabad are already under implementation. The estimated cost of Bangalore and Hyderabad airports is Rs. 1,410 crore and Rs. 1,760 crore respectively, adding up to Rs. 3,170 crore. These projects were initiated when traffic growth was comparatively low. It is expected that in order to meet the increased traffic, additional investments would become necessary. BIAL is already considering an additional investment of Rs. 400 crore. The estimated investment for these two airports could be assumed as Rs. 4,000 crore. The estimated cost in respect of Navi Mumbai airport has been taken at Rs. 2,500 crore and the cost for other airports namely Goa, Pune, Greater Noida and Kannur has been taken at Rs.1,500 crore each. This would add upto Rs. 8,500 crore. Capex for thirty five non-metro airports Ministry of Civil Aviation has proposed development of 35 non-metro airports, keeping in view the potential for traffic, tourism, business etc. The development of these airports was proposed in three Phases as follows:
a) Phase-I

(10 airports): Ahmadabad, Amritsar, Guwahati, Jaipur, Udaipur, Trivandrum, Lucknow, Goa, Madurai and Mangalore. In case of project specific problems, some airports may need to be substituted. b) Phase-II (15 airports): Agati, Aurangabad, Khajuraho, Rajkot, Vadodara, Bhopal, Indore, Nagpur, Vishakapatnam, Trichy, Bhubaneswar, Coimbatore, Patna, Port Blair, Varanasi. c) Phase-III (10 airports): Agra, Chandigarh, Dimapur, Jammu, Pune, Agartala, Dehradun, Imphal, Ranchi and Raipur.
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Past expenditure and absorption capacity Details of capital expenditure incurred by AAI during the past five years are shown in Table 4 below. The expenditure was incurred through contracts and provides a broad indication of AAIs capacity to absorb budgetary outlays of about Rs. 900 crore per annum under this mode. Past Capex on airports by (RS IN CRORE)
Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006(RE) Non-Metro 237 249 283 444 442 606 Metro 112 70 162 122 164 346 Total Airports 349 319 446 566 606 952

Table: 2.7 Past Capex on Airports Any significant increase in the annual allocation for the contract mode may be avoided so as to preserve the minimum requisite supervision and quality of works. It was, therefore, felt that AAI could take up annual investments in the range of about Rs. 1,000 crore per annum. This would include expenditure on civil works as well as on equipments. In order to ensure on-time and on-cost delivery of projects in a scenario of significantly higher investments, spread over several locations, MoCA should examine the possibility of AAI hiring supervision consultants for assistance in project management, quality assurance etc. Public Private Partnerships (PPPs) The total investment from PPPs is projected as given in Table 2.8 Projected Investments from PPPs in airports (Rs. in crore)
S.N 1. 2. 3. 4. 5. Airport Private Investment

Delhi and Mumbai Bangalore and Hyderabad Chennai and Kolkata Five Greenfield airports City side development Total
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11,400
4,000 5,700 8,500 1,500 31,100

Table: 2.8 Projected Investments From PPPs In Airports

. Table:2.9 Capacity and Demand for Air Services on Indian Domestic Routes

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Figure: 2.9 Infrastructure spending

Infrastructure investment, by sector

Figure: 2.10 Infrastructure Investment, By Sector

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2.11Different infrastructure Schemes

Build Operate Transfer (BOT) schemes A BOT scheme occurs when the government grants a concession or franchise to a private firm in order to finance and build or modernize a facility that will also be operated by the firm for a certain period of time (20 to 50 years is a common period for airports). The private operator will get corresponding revenues and in turn it will assume all commercial risk. When the concession period expires, the facility will return to the government. This scheme and all its variants has been widely used for infrastructure development. Example: A BOT scheme was utilized by the Colombian Government in 1995 for the construction and maintenance of a second runway, as well as for the maintenance of an existing runway at El Dorado Airport in Bogot. The US$100 million would be recovered by the landing fee revenues collected during the 20 year concession period. The regulatory body specially created at the time is the Organismo Regulador del Sistema Nacional de Aeropuertos (ORSNA), which among other tasks, will supervise airport fees and investment requirements fulfillment. Example: In Australia, Twenty two of the nations airports, which were previously under control of the Federal Airports Corporation,22 have been or are currently being leased for 50 year terms with an option for another 49 years. According to the Australian Government each airport should, whenever possible, be sold separately and remain subject to a regulatory framework. The government decided against the use of an industry specific regulator, so the Australian Competition and Consumer Commission will undertake regulatory duties.

Build Own Operate Transfer (BOOT) scheme The private operator also retains ownership of the facility during the concession period, usually in order to guarantee bank loans. Torontos Lester B. Pearson Airports third terminal, with a capacity for 10 to 12 million passengers, was developed under this type of arrangement The deal included a 40 year land lease, with an option to renew for a further 20 year period, a lump sum payment to the government of Cdn$30million, and an annual lease payment based on developers gross revenues. Lease Develop Operate (LDO) scheme It consists of a long term concession on an existing facility. A private firm operates and upgrades or expands the facility, obtaining revenues from operations, and pays rents back to the government, which retains the property throughout the concession period. Example: La Chinita Airport in Maracaibo (Venezuela) in 1993, although it was unsuccessful due to a consortium breach of contract and changes in the political situation. 1. Private ownership and private operations
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British Airports Authority used to be a public corporation until 1987, when the government, applying the Airports Act, decided to take 500 million shares under full flotation at a subscription price of 2.40 each. As mentioned earlier, the government kept a single share (golden share), and 25% of equity was reserved for employees. In order to avoid capital British Airports Authority used to be a public corporation until 1987, when the government, applying the Airports Act, decided to take 500 million shares under full flotation at a subscription price of 2.40 each. As mentioned earlier, the government kept a single share (golden share), and 25% of equity was reserved for employees. In order to avoid capital concentration, individual participation was limited to 15%. Initially, foreign capital participation was also limited, although it reaches some 10%. Finally, private participation amounts to 95% of total shareholdings. Different models of airport ownership and management can be categorized as follows:

Public ownership and public operations Public ownership and public operations with commercial orientation Regional ownership and operations Public ownership with private operations: joint ventures, partial/majority divestitures, management contracts, BOT and similar concession schemes, etc. Private ownership and private operations.

1. Public ownership and public operations This is the model that traditionally has been utilized to operate airports around the world. Usually, a Civil Aviation Department, under the supervision of the Ministry of Transport or even the Ministry of Defense, operates and owns most airports. The Commando de Regions Areas (an arm of the Air Force) that owned, administered and operated a total of 400 airports in Argentina, has constituted, until recently, an extreme case of this type of model. In general, most countries start airport services operation with the participation of the army, although afterwards they tend to distinguish between the control and operation of military and civil air traffic services. 2. Public ownership and public operations with commercial orientation This model aims to improve management and airport finance autonomy, facilitating access to private capital markets. The British Airport Authority, established in 1966 was the first authority operated according to such criteria. The Israeli Airports Authority, Aeropuertos Espaoles Navigation Area (AENA) in Spain, and INFRAERO in Brazil are other instances that fit into this model.

3. Regional ownership and operations This is an alternative to public ownership and operation by a national body. It seeks to promote development for the airport region, and as a result, property is found either in the hands of one or several local or regional entities. This approach has been used at airports in the US (except for airports in Washington), the United Kingdom (but for BAA airports) and
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France. Some local governments may operate several airports, such as Aroports de Paris which has four, but generally, it is normal to control just one. 4. Public ownership with private operations Privatization policies are undertaken to promote efficiency in a public budget constraint environment, and are often driven by disenchantment with public sector performance. However, there is not a single model for airport privatization. The range of possible options is wide, and includes: joint ventures, partial/majority divestitures, management contracts, BOT and similar concession schemes, etc. Joint Ventures This was applied to Kansai International Airport (Japan), which has a unique ownership structure. The Japanese Government owns b of the shareholdings, with the rest belonging to 12 different local governments and more than 800 private companies and individuals. The total project cost exceeded more than US$20 billion, which included the construction of an artificial island. The airport is administered as a private company, although with limited managerial and financial autonomy, and is under the supervision of the Ministry of Transport. Partial/Majority divestitures. The government reduces its equity participation either in part or to one single share (or even to zero shares). Shares divested could be sold directly to local or regional governments or to private individuals, or they could go under public flotation. Divestitures are mainly used as a means of obtaining private equity funding for future airport expansion. Management contracts The management of all or part of the airport is contracted out to a specialized operator for a given period of time and under certain conditions regarding performance, maintenance, incentives and infrastructure investment.

2.12 Comparison between world & Indian infrastructure 2.12.1 All infrastructure Sector analysis India
a) The civil aviation traffic has seen an unprecedented traffic in the past few years on

account of booming Indian economy, growing tourism industry, entry of low cost carriers in the private sector, liberalization of international bi-lateral agreements and liberalization of civil aviation policy. In future also the civil aviation traffic is expected
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to grow at the same pace despite current slowdown due to global recession. But airport infrastructure has not kept pace with the growth of the civil aviation traffic. This has resulted in congestion and inefficient services in major airports, limited landing slots, inadequate parking bays and congestion during peak hours for airlines. Development of quality infrastructure will have an impact on international competitiveness and economic growth. This requires faster development of civil aviation infrastructure on public private partnership mode. In tune with the requirement many initiatives have already been started in the 10th five year plan and they are expected to continue in the 11th plan also.
b) From total number of 454 airports and airstrips in India, 16 are designated as

international airports. The Airports Authority of India (AAI) owns and operates 97 airports. A recent report by Centre for Asia Pacific Aviation (CAPA) states that over the next 12 years, India's Civil Aviation Ministry aims at 500 operational airports. The Government aims to attract private investment in aviation infrastructure. India has been witnessing a very strong phase of development in the past few years. Many domestic as well as international players are showing interest in the growth and development of the aviation sector with immense focus on the development of the airports. With the opening up of the domestic skies to private carrier in the second half of the Tenth Plan, air services have become affordable and are now competing with other modes of transport. Propelled by economic growth and liberalization, the sector experienced an unprecedented growth during the Tenth Plan, especially during the last three years. Indian private airlines Kingfisher, Jet, IndiGo, Spice jet, Go Air, Paramount account for around 84% of the domestic passenger traffic. Some have now started international flights. For the next years to come India is poised with strong focus on the development of its airports to meet the international standards. The government is planning modernization of the airports to establish a standard. The newly developed airports will help releasing pressure on the existing airport in the country.
c) The passenger traffic has grown tremendously during the last five years. It has grown

from 5.92 crores in 2004-05 to 11.68 crores in 2007-08 showing an overall growth (CAGR) of 25%. The main factors contributing to this growth include the growth of the economy, falling fares, and increasing capacities of domestic private airlines. Notwithstanding the slowdown in the year 2008-09 and in the current year, the passenger traffic over the next 12 yrs is expected to grow from 11.97 crores in 2010-11 to reach 31.66 crores by 2022-23 with a growth (CAGR) rate of 8.44%. Market Share of Private Sector in Domestic Traffic The private sector is now playing a crucial role in the development of both airline and airport sector. Its market share in the domestic traffic as on March 2009 reached 84%. Kingfisher Airlines has emerged as the market leader with a share of 27%. The details of domestic market share of Indian air carriers by passengers carried as of March 2009 are given below.

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Figure: 2.11 Market Share Of Indian Air Carriers

Global Scenario of Airport Sector Globally United States is leading the airport sector with 5146 Airports serving a population of 30 crores. Whereas India is having only 251 airports serving a population of 116 crores. Though the requirement of airports depends on percapita income, standard of living, Trade & Commerce etc.., going by the size of population covered by US airports, India requires around 22,328 airports to reach the same ratio of coverage.

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Table: 2.10 Number Of Airports In Various Countries

2.12.2Trend Analysis One of the most valuable deliverables in a well-organized information-sharing environment involves trend analysis. Airports, as has been pointed out, are usually acutely aware of local events and, to a somewhat lesser extent, demographics. Governmental organizations, at local and federal levels, have a wider scope of information collection capabilities. The opportunities for airport-local-federal partnerships abound. Using some of the collection sources mentioned above or by creating and leveraging new ones the security manager can attain unique capabilities. Information about seemingly unrelated activities can be collected, analyzed and culled for possible trends. Although some of this is already underway, greater emphasis can and should be placed on it. The communications infrastructure to carry out the activity needed for effective trend analysis exists in various degrees of maturity. The civil aviation community, multifaceted and even chaotic to the untrained eye, is actually an interconnected network of entities that has spent years perfecting communications. Some work of that type is being accomplished by different agencies, most at the federal level. A notable example is a new partnership program between elements of the Department of Homeland Security and local law enforcement. The program involves training local police to make and report spot observations. These reports are entered in a database available to other local and federal law enforcement groups around the nation. The database can be used to search for and produce
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information on similar events. As this program expands, the potential for trend analysis will grow exponentially. This type of innovative approach to data collection and federal/local partnership is indicative of the wider federal vision involving airport security assets in addition to law enforcement. These initiatives appreciably widen the intelligence collection effort and greatly enhance information gathering capabilities. For the seven months ended 31-Oct-2009, total passenger traffic is up 8.7% year-onyear to 68.9 million passengers, compared to 63.4 million in the seven months to 31-Oct2008. Airport Authority of India (AAI) international passenger number and domestic passenger number growth: Oct-2008 to Oct-2009

Figure: 2.12 International Passenger Number And Domestic Passenger Number Growth
Source: Centre for Asia Pacific Aviation & AAI AAI reports all regions have registered positive growth in passenger traffic, between 10% and 31% year-on-year for Oct-2009. The highest regional increases in total passenger traffic growth are the Northern region (+30.5%) and the Western region (+26.9%). The Southern, Western and Northern regions had the highest share of passenger numbers in Oct-2009, with 30.6%, 30.5% and 27.3% shares each, respectively.

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RESEARCH PLAN

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3. Research Plan
3.1Introduction
The research plan is the main part of a grant application describing a principal investigator's proposed research, stating its importance and how it will be conducted. A typical research plan has four main sections:
a) Specific Aims. b) Background and Significance. c) Preliminary Studies and Progress Report.

d) Research Design and Methods.

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The research plan should be written to address the following questions: What do you intend to do? Why is the work important? What has already been done? How are you going to do the work?

Objectives
The specific aims is a formal statement of the objectives and milestones of a research project in a grant application. The purpose of this section is to clearly and concisely describe what the proposed research is intended to accomplish. Should include specific research objectives. Should be hypothesis-based. Objectives should be obtainable within the proposed timeframe. Study aims should fit together in an overall framework. Study should be well-focused rather than broad and diffuse.

Background and Significance

The background and significance section states the research problem including the proposed rationale, current state of knowledge and potential contributions and significance of the research to the field. Critically evaluate existing knowledge, including background literature and relevant data. References should reflect an updated knowledge of the field. Specify existing gaps that the project is intended to fill. Discussion should convey the importance and relevance of the research aims. Highlight potential policy or practice impacts. Highlight why research findings are important beyond the confines of the specific research project (e.g., significance; how research results can be applied).

Preliminary Studies and Progress Reports

The preliminary results section describes prior work by the investigators relevant to the proposed project. In a new application, the preliminary results are important to establish the experience and competence of the applicant to pursue the proposed research project and to provide support for the study hypotheses and research design. In a competing renewal application, this section becomes a progress report, describing studies performed during the last grant period. The progress report should include a summary of the previous application's specific aims and importance of the findings. Discuss how previous work leads to the current proposal.
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Emphasize how the previous work demonstrates feasibility of proposed methods. If you do not have the required expertise for a specific methodology, enlist a collaborator or consultant (include a letter of support or agreementSection J of the Research Plan). Accuracy and overall presentation are important in figures, tables and graphs.

Six to eight pages is recommended for the narrative portion of the preliminary studies and progress report section.

Research Design and Methods

The purpose of the research design and methods section is to describe how the research will be carried out. This section is critical for demonstrating that the applicant has developed a clear, organized and thoughtful study design. Should provide an overview of the proposed design and conceptual framework. Study goals should relate to proposed study hypotheses. Include details related to specific methodology; explain why the proposed methods are the best to accomplish study goals. Describe any novel concepts, approaches, tools or techniques. Include details of how data will be collected and results analyzed. Consider required statistical techniques. Include proposed work plan and timeline. Consider and discuss potential limitations and alternative approaches to achieve study aims

3.2 RESEARCH ISSUES

Analysis in this paper discusses how the federal funding of airport infrastructure addresses the needs of aviation and how the funding mechanism could change to make the system more functional. On August 6th the Federal Aviation Administration (FAA) authorization ends, forcing Congress to set future airport funding levels. If Congress and the President do not invest enough funding in airport infrastructure, there could be serious consequences to capacity, reliability, safety and competitiveness in aviation. The current Federal funding system lets Capitol Hill make funding tradeoffs between politics and dependable airport infrastructure. Spending more money is not the end-all solution for infrastructure, but guaranteeing a link between airport needs and federal funding removes the political battle from affecting the dependability of our airports. Airport Infrastructure Cause and Effect When looking at investments in airports, consider that trends in commercial aviation growth are continuing. Both the FAA and the Airports Council International-North America reported that the 1998 enplanements increased by an average of 2.2%.1 The FAA long-term forecasts indicate that the enplanement rates are expected to increase by 3.4% annually over
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the next 12 years. This increase in traffic will continue to wear down infrastructure at a faster rate than current funding levels can support, and increase the demand for airport expansions. Congress, the President, voters, industry and airports need to know that funding must go towards infrastructure for the upkeep of air travel. The question remains as to how much and where that money is spent. Airport infrastructure includes runways, taxiways, aprons, terminals, noise abatements, land purchases and equipment for safety, emergency, and snow removal.2 Development and improvement of this infrastructure could increase efficiency and reduce costs to airlines by reducing the delay time each aircraft experiences. The National Civil Aviation Review Commission, established by Congress, reported that negative effects from flight delay will soon lead to gridlock in aviation. 3 By increasing funding, improved infrastructure would allow the airports to keep up with current trends in aviation growth. Terminal expansions would also support growth by helping to increase capacity and airline competition at an airport. Long term investment helps promote reliability in airports and economic stability in airport funding. A General Accounting Office (GAO) report from July 1998 suggests that if pavement rehabilitation projects are not performed in a timely manner, costs can escalate to 2 to 3 times over normal costs.5 This type of development issue brings short term versus long term investment strategies to the front of the funding debate. Long term funding reduces the cost to the overall system and promotes reliable resources for air travel.

3.3RESEARCH OBJECTIVES
The purpose of research is to discover answers to questions through the application of scientific procedures. The main aim of research is to find out the truth which is hidden and which has not been discovered as yet. Though each research study has its own specific purpose, we may think of research objectives as falling into a number of following broad groupings: a) To gain familiarity with a phenomenon or to achieve new insights into it. b) To portray accurately the characteristics of a particular individual, situation or a group. c) To determine the frequency with which something occurs or with which it is associated with something else.

3.4SCOPE OF STUDY
The scope of study is immense as every scheme is directly related to the aviation sector. A proper look into these steps will subsequently useful to the people related to this sector. For example take the case of Hyderabad-Rajiv Gandhi International Airport. This research will provide about what is the percentage of investment is done by government, foreign players etc.

SECONDARY DATA
Secondary data is obtained through various,
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Management books Journals Newspapers and Internet

LIMITATIONS
This study has some inherent limitations:

The secondary data is very large and easy to collect and its very difficult to interpretation and cumbersome to analysis the secondary data. Secondary data may not be available from all the reports and journal because there may be threat/fear from the Researcher. There is no chance of searching all the data because they are working in different shifts.

Due to the vast subject and various statutory measures prevailing for infrastructure (airports).Hence the study is limited to a certain data about infrastructure.

3.5 RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. It is necessary for the researcher to know not only the research methods/techniques but also the methodology. It is defined as a highly intellectual human activity used in the investigation of nature and matter and deals specifically with the manner in which data is collected, analyzed and interpreted. While formulating research methodology we have to keep in mind following constraints which encountered while doing or thinking of doing the project. Time constraints Financial consideration Anticipating and avoiding problems Equipment limitations Human resource limitations Out of the box thinking In the box thinking

Now based on above points research methodology is divided in four main parts Quantitative
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Critical and action oriented

Common Types of Quantitative Methodology

Biographical Phenomenological Ethnographical Case study

Since we are doing agricultural survey we have chosen qualitative methodology for our research. In this we have taken data from small group(50people) and analyze the matter through to come out with our findings.

3.6 CONCLUDING REMARKS

Secondary data, such as registries and retrospective databases, are often considered to complement randomized clinical trials since they are less costly and can be used to incorporate real world experience to answer important health care questions. Analyses of secondary data provide a relatively efficient means for addressing hypotheses regarding adherence, treatment patterns, and burden of disease. However, effective use of secondary data requires addressing major methodological and infrastructural issues, including development of analytical tools to readily access and analyze data, formulation of guidelines to enhance quality and transparency, establishment of data standards, and creation of data warehouses that respect the privacy and confidentiality of patients. This paper described infrastructural requirements for secondary data utilization in the context of comparative effectiveness research and identified gaps that must be filled to address the underlying issues, with emphasis on data standards, data quality assurance, data warehouses, computing environment, and protection of privacy and confidentiality.

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Study Area and Analysis

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4. Study Area and Analysis

For this report the area of our study was Indian aviation sector in particular and world aviation in general. The aviation sector has grown tremendously in last few years in India especially with the rise of income of middle-class people, more and more people were opting for air travel then the convenience means of transport. The world aviation sector as a whole witness dual phase while in developing economies like India etc it increases at rapid pace air traffic, in developed countries there was stagnation in this sector due to various reason.

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Figure: 4.1 Location of Aviation Sector In India

No of Airports in India presently:

Figure: 4.2 Investment in Projects by Region (US$ million)

This shows that after subprime the projects in South Asia region has reduced while the investment in developed region like Europe etc still persist(though reduce) .These can be due to political, legal, economical factors as lease are difficult to get from government here
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in India. Also rules are cumbersome in South Asia countries like India so investor deter to invest in this region.

Figure: 4.3 Investment in Projects by Region (US$ million)

Here also the investment is far more in Europe in current years than South Asia(India etc) even in the time of recession etc.

Figure: 4.4 Number of Transport - Airports projects by type of private participation and
financial closure year. This graph shows that today more and more of airports built on management and lease contract

Figure: 4.5 Airports Projects By Region And Type Of Private Participation

This graph shows that in South Asian countries only two type of projects are successful:Greenfield and Management and lease contracted. While in European region concession type of projects are more successful. The above graphical data is represented in tabular form:

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Table 4.1: Cancelled or Under Distress Projects and Investment by Region (US$ million)

Benchmarking Airports
Purpose

Region
East Asia and Pacific Total East Asia and Pacific Europe and Central Asia Total Europe and Central Asia Latin America and the Caribbean Total Latin America and the Caribbean South Asia Total South Asia Sub-Saharan Africa

Type of PPI Greenfield project

Project Count 1 1

Total Investment 520 520 0 0 134 134 0 0 12 166 200 377 1,031

Management and lease contract

1 1

Concession

2 2

Management and lease contract

1 1

Concession Divestiture Greenfield project

1 1 1 3

Total Sub-Saharan Africa Grand Total ..

A brief benchmarking of airports is carried out in this section. The purpose of this exercise is to determine key points of difference between Indian and other international airports. In order to carry out the study, annual reports of publicly listed airports was carried out and this was compared with the Airports Authority of India(AAI). It should be noted that consolidated figures for all AAI controlled airports were used as corresponding figures for individual airports were not available. Unique Zurich, Vienna, Brussels airport and BAA were used in the analysis. The choice of airports was largely based on availability of data. The Results
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Parameters under the following broad heads were analyzed for the purpose of the benchmarking exercise Revenue, Profit and input/output based factors. For the purpose of comparison, all factors were converted to an indexed value.

Revenue Based Factors: The following graph shows the comparison of the airports across different revenue based factors:

Figure: 4.6 Revenue based factors for analysis of airports

Relatively speaking, AAI has:

A high percentage of aeronautical revenue This shows the high dependence of AAI on aeronautical revenues and the low level of development of non aeronautical streams of revenue. Low commercial revenue per passenger This points towards a low level of development of non aeronautical streams of revenue. Very low revenue per employee AAI, being a government controlled organization, cannot take tough labor related decisions based on economical considerations. Hence, we see surplus labor at AAI.

Profit Based Factors The following graph shows the comparison of the airports across different profit based factors: Relatively speaking, AAI has:
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Low operating profit per passenger This is mainly because of inefficiencies in the operations of AAI

Figure: 4.7 Profit Based Factor

Input/ Output Based Factors The following graph shows the comparison of the airports across different input/output based factors:

Figure: 4.8 Input Output Based Factor

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Observations Relatively speaking, AAI has: Low passengers per employee Low staff cost per employee High percentage of staff cost in total cost

Gap Analysis Based on the above factors, the following major developments for the business models of Indian airports are forecasted:

Workforce rationalization As the airports get privatized, there would be increasing pressure to increase efficiency. This would lead to cost cutting. As staff costs as a percentage of total costs is high for Indian airports(with low staff cost per employee), staff costs would be one area which would see a downward revision. In the recent privatization of Delhi and Mumbai airports, this was a major area of concern as the unions of both airports went on a strike protesting against privatization. The government had already included a clause in the RFP stating that the JV had to retain at least 40% of the workforce. Increasing contribution of non aeronautical revenues As the mindset towards airports shifts from being infrastructure providers to businesses, airport operators would look for new sources of revenue generation. As non aeronautical revenues have proven to be a good source of revenue for airports worldwide, Indian airports are bound to move in this direction.

Hence, from the above analysis, we note that Indian airports have a long way to go before they achieve parity with world class airports. The government has identified the poor state of airports as a problem and has taken affirmative action to tackle the same. In order to expedite the process of learning best practices from international airports, it has to invited participation from airport operators worldwide in the airport privatization process.

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Conclusion and Recommendations

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5. Conclusion and Recommendations:

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Any civil aviation policy in the early part of its development will tend to promote the greater good of the countrys civil aviation as a whole and there the airports are not expected to be profitable business. They are also subsidized, but the objectives towards its airports, cannot be geared solely towards the promotion of a national system after a point of time. They need to be self-sufficient, or else they might damage the industry itself. Viability, efficiency and the availability of financing sources have become important objectives. Moreover, airports have evolved into multifaceted commercial operations, which require a restructuring of the role of the State. At the same time it is also not prudent to put a monopoly in private hands as they can be abused. Consequently, the role of regulation has to be very well defined. It should neither be too loose, leaving the operator free to exploit his monopoly, nor too tight, would so as to stifle the enterprise from the benefits that privatization bring. In the Indian scenario, due to bureaucratic quagmire and the resulting lack of accountability and transparency, profits have very rarely been a consideration. The airports in India are generally inefficient and rely on government subsidies to cover operating expenses. The primary reasons for this are political interference in the appointment of management, uneven commercial structures, inadequate maintenance and operational inefficiency resulting from overstaffing and limited commercial orientation. Compliance with international safety and environmental standards are also rare as there is a limited access to resources from the government. Debt financing is either directly from government sources, or indirectly through official lending institutions. In fact, future investment needs is the most important reason why governments throughout the world are pursuing changes in the airport ownership structure. Access to private capital markets becomes vital to infrastructure development and is a key element of economic growth strategies worldwide.

Proposed Classification of Airports:

To develop the capacity of airports in accordance with the future projections, it is proposed to reclassify the airports as follows:

International Hubs: This category will be that of 'International Hubs' which may cover airports currently classified at 'international airports' and those eminently qualified to be upgraded as such. These would at present cover Delhi, Mumbai, Chennai, Calcutta and Thiruvananthapuram. Airports at Bangalore, Hyderabad, Ahmedabad, Amritsar and Guwahati can be added to the list as and when the facilities are upgraded to the desired level. International hubs would be used for dispersal of international traffic to the hinterland. In these airports, the facilities shall be of world class standards, including convenient connections to international and domestic passengers, airport-related infrastructure like hotels, shopping areas, conferencing and entertainment facilities, aircraft-maintenance bases, etc. Regional Hubs: Government is keen to encourage development of regional airlines based on small aircraft to provide air-linkages in the interior areas of the country. Regional hubs will have to act as operational bases for regional airlines and also have all the facilities currently postulated for model airports, including the capability to handle limited international traffic. The identification of Regional Hubs will be made on the basis of origin-destination surveys, traffic demand and the requirements
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of the airlines. State Govt. will be closely associated as co-promoters of regional airlines. Other operational airports: These will be developed so as to be cost-effective on the basis of individual needs to meet the requirements of traffic handled by them. Airports serving State Capitals will be given priority.

The status of individual airports may be reviewed at five-yearly intervals, on the recommendation of a Committee of Experts. Grant of status as International hubs will be with prior Cabinet approval. It is clarified that international hubs shall have the status of 'international airport' for purposes of bilateral agreements. The following recommendations could be considered to address the supply side constraints such as long term funds:

Airport Finance Corporation Setting up of an Airport Finance Corporation on the lines of Power Finance Corporation is required. This can facilitate lower interest rates and longer maturity of loans. Dedicated amount will be set aside for this sector. Non Taxable Bonds Long Term Funds may be allowed to be raised through Non Taxable Infrastructure Bonds by the financial institutions for funding in the airport sector. There may be certain period of lock in for the invested amount. This facility may be allowed until the required amount of gap in investment in airport sector is bridged. Range of Incentives The range of incentives available to the PPP projects in airport sector should be specified upfront. On a case to case basis, each PPP project will announce the bunch of incentives available for that particular project to make the project commercially viable. This brings clarity to all the parties to the project. The list of incentives can be increased or decreased as growth in the sector takes momentum. Separate limit for External Commercial Borrowing There should be separate sectoral limit for airport sector for utilizing External Commercial Borrowing. Because of the bunching with other sectors, the amount of inflow to the airport sector may not be that significant. The cap in the interest rate may also be raised in case the amount is for subordinated debt and Mezzanine financing. Separate limit for investment in debt market by FIIs There should be sectoral limit in investment in debt market by FIIs. This will stop crowding in some particular sectors. The sector limits brings in reasonable allocation to all sectors. There will be balanced development in all sectors. Disinvestment of Equity and the Tax concession There should be separate and comprehensive guidelines in respect of disinvestment of equity by the developers and the tax treatment thereon. As most of the infrastructure projects are handled by Special Purpose Vehicles, the treatment in case of dividend declaration by parent company and the SPV should be seen holistically without the burden of double taxation.
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It is important to understand that not all airports are financially viable. Many airports serve regional and social functions regardless of viability. These airports cannot just be abandoned. However the extent of the burden has to be reduced. For these airports there are three possibilities- either the issue of cross subsidy is transferred to the private sector, or the government retains some commercial risk but allows the private sector to improve financial performance, or the government retains the unviable airports and uses money from sale of financially strong airports. Transparency in the privatization procedure is essential, as adequate dissemination of information tend to increase the economic value of the transaction as well as public goodwill. Moreover, the government needs to acknowledge the growing role of global airline and airport operators in managing these corporations efficiently, and their expertise has to be harnessed.

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9. www.centreforaviation.com/analysis/india-capex-report-2011-45674 accessed

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