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Airport infrastructure: Case for expediting growth (Column: Behind Infra Lines)


With its rapidly-growing economy, the fact that needs significant investments in infrastructure cannot be overemphasised. While (PPPs) and privatisation of airports have been attempted to some extent, the time has come to accelerate the pace on this front.

The broader trend seen in infrastructure, of attracting global capital, applies as much to airports as to any other sector. As they say, "All Roads Lead to Rome" (implying that there are few roads to Rome). There are alternative ways of creating and financing infrastructure.

"Asset recycling" -- a strategy of monetising existing assets to generate capital -- eminently applies to airports. Asset recycling of existing assets will allow the to monetise financially-viable projects to generate capital with which to finance other economically useful -- but not financially viable -- airports. This is an alternative to a viability gap fund strategy or a strategy of financing new assets using extra charges on air tickets. The asset recycling strategy needs to be looked at in greater detail, especially with a view to developing airports in tier-2 and tier-3 cities.

operators and regulators also need to start thinking in terms of capital structure innovation around businesses. In terms of generating financing, the business can be listed through an IPO. This is an idea that has been around for a while in Globally, operators such as Airports are also looking at IPOs.

The cash liquidity that an IPO route provides without having to deal with the contingent liabilities of a debt structure can be useful in pursuing high-growth projects for operators. On the other end of the spectrum are financial instruments such as revenue-backed bonds. This would be a big step for airports and operators in

While revenue-backed bonds would take some regulatory mechanism changes, the impact can be crucial to speed up the creation of infrastructure. The ability of operators to optimise their capital structure using a variety of well-defined financial instruments and vehicles will be very important to bring down the cost of capital and facilitate its flow into the sector.

A more delineated capital structure will mean that assets will open up not just to large operators but also to relatively smaller financial institutions interested in a "pie of Indian airports". Having a wider capital base means more competition for assets and a more efficient credit system.

A few critical questions worth asking are: Why does infrastructure matter in Are there positive multiplier effects of creating more such infrastructure? Given limited resources and various requirements, why is infrastructure a compelling investment opportunity?

A study, titled "Economic Impact of European Airports" by InterVISTAS, found that the relationship between aviation connectivity and GDP per capita for 40 countries was a positive one but with a significant scattering around the average. The key takeaway from the study is the positive impact on GDP growth that infrastructure has -- and the careful planning needed to deliver this positive impact.

It is important that the creation of infrastructure by both private players and regulators looks at each asset individually within the It is as important not to create excess capacity as it is to build Without doubt, business productivity, local economies and inbound tourism all stand to develop from well-built infrastructure.

Interestingly, according to a study by the (CAPA) in 2014, domestic per capita in was 0.08, while the number for the was 0.29. According to the World Bank, the nominal GDP per capita in 2016 for was approximately $1,709 versus $2,951 for the

Despite this, according to CAPA, was the third-largest domestic aviation market in the world in 2016 -- and one of the fastest-growing. The data tells us that despite the aggregate size of the market, penetration rates are low here. This implies that the economic and financial value creation capacity of airports in is immense. infrastructure creation, if done well, is an opportunity for everyone involved.

(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. Views expressed are personal. He can be contacted at or @Taponeel on Twitter)



(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, March 14 2018. 12:36 IST