INDIA TO LAY FRAMEWORK FOR DEVELOPMENT
▶ Government has set out to form alliances to fund its $1.5tn infrastructure overhaul. Rebecca Bundhun reports
India’s poor infrastructure is creating substantial opportunities for investment as the Indian government pushes to make the sector more attractive for investors. The country is in desperate need to overhaul many of its most basic facilities.
“The infrastructure problem itself is throwing up a lot of opportunities,” says Shailesh Puranik, the managing director of Puranik Builders, an Indian property developer. “And I think this is one of the best times for international money to come to India because of the favourable market conditions; because of the favourable government at the centre; and because of the favourable policies that we have. They’re looking for more and more investment to come in.”
India is likely to see increased foreign investment flowing into the country over the coming years because of these factors, he says.
Last week, India’s National Investment and Infrastructure Fund (NIIF) announced that it had signed an investment agreement worth US$1 billion with a subsidiary of the Abu Dhabi Investment Authority (Adia). The Abu Dhabi sovereign wealth fund has become the first institutional investor in the master fund and a shareholder in the company, according to the NIIF.
India needs $1.5 trillion of investment in infrastructure over the next decade, India’s finance minister, Arun Jaitley, has stated.
Roads, water and sanitation facilities, railways, airports and power infrastructure, across the country, are among the areas most desperately in need of development. Parts of the country are still hard to reach due to lack of connectivity.
But there are a number of hurdles that have held back infrastructure development in India.
These include bureaucracy, corruption, land issues and opposition to projects. Such delays have weighed heavily on India’s banks’ bad debt problems.
Improvement to these facilities is considered all the more pressing given the fact that economic growth slowed to a three-year low in the quarter between April and June to 5.7 per cent, at a time when India needs to achieve much higher levels of growth to create enough jobs for the 1 million Indians that enter the country’s workforce every month.
Poor infrastructure in India is often cited as a major hurdle to business activities and expansion in the country and hamper foreign investment into other sectors.
“Despite major developments in India recently, we still have a lot of infrastructure challenges,” says Srividya Kannan, the founder and director of Avaali Solutions, a consultancy based in Bangalore.
“There’s a huge unmet need for investment in infrastructure.”
For example, India’s transport system “is still quite weak in terms of safety, speed and connectivity”, she says.
The poor state of the railways sector in particular – often described as the backbone of the country’s economy – has been the focus of much attention as fatal accidents continue to take place, with the most recent incident being a stampede at one of Mumbai’s train stations, which claimed 23 lives.
“There is also immense scope for public-private partnerships in the infra space – infrastructure projects need funding from both,” says Ms Kannan.
Though public spending on infrastructure has increased. Narendra Modi’s government has placed a lot of emphasis on pumping more state funds into infrastructure, a key policy for the regime. In this year’s budget, New Delhi allocated a record 3.9tn rupees (Dh220.3bn) to infrastructure for the current financial year.
In a sign of the government’s commitment towards improving India’s basic infrastructure, Mr Modi last month unveiled a $2.5bn scheme aimed at ensuring that more than 40 million households without electricity in the country receive power connections.
Investors like to see government money being pumped into the sector before they are willing to put in their own capital.
But India’s financial deficit means the country needs private investment to make the sizeable improvements that are required when it comes to infrastructure.
Attracting foreign investment into infrastructure has been high on Mr Modi’s agenda.
He has conducted high-profile trips to Japan, China, the UAE and the United States, among other countries, since he came to power, in an effort to attract more investment into areas including infrastructure. These efforts appear to be starting to pay off.
Mr Modi’s visit to the UAE in 2015 resulted in the announcement of a plan to create a $75bn infrastructure fund for investment into roads and ports among others.
Investment is also coming in from elsewhere.
Last month, Mr Modi and the Japanese prime minister, Shinzo
Now it is necessary to modernise the infrastructure sector to match the level of global standards RAHUL PILLAI Chief executive of Interem Relocations
Abe, launched work on India’s first bullet train project, which will run between the commercial hub of Ahmedabad in Gujarat and Mumbai. The high-speed train will cost an estimated $17bn, which is largely being funded by a low interest rate loan from Japan and will use Japanese technology.
Japan is also involved in the Delhi-Mumbai Industrial Corridor, a planned industrial development project between India’s capital Delhi and its financial hub Mumbai, which has been described as the world’s largest infrastructure project.
Such projects are ultimately expected to help spur investment into other industries.
“Now it is necessary to modernise the infrastructure sector to match the level of global infrastructure standards,” says Rahul Pillai, the chief executive of Interem Relocations, based in Dubai and with operations in India.
“It is crucial to invite and attract huge investment. Improvement of the infrastructure sector in India is very important because infrastructure is the basic requirement for economic development. It can quicken or impede the development of an economy.”
But there are concerns that the obstacles that have hindered infrastructure development in the past could persist and some analysts have noted that banks have been negatively impacted by stressed assets in the infrastructure segment and this had made lenders more cautious.
Mahesh Singhi, the founder and managing director of Singhi Advisors, an investment banking firm based in Mumbai, says the infrastructure sector needs a clearer policy framework and that “private participation in infrastructure has suffered” because of challenges including environmental and land acquisition, and difficulties finding “bankable” infrastructure projects. Farmers and local communities, for instance, sometimes oppose developments, which delays or prevents work.
Some business leaders say that positive efforts are under way by the government to ensure infrastructure projects do not get stalled. It has taken steps to remove red tape to permit swifter clearances for projects, for example.
“They’re trying to minimise the issues on the ground,” says Mr Puranik.
Authorities in India hope Adia’s investment into India’s infrastructure fund will pave the way for more much-needed foreign investment to flow into the infrastructure sector.
Sujoy Bose, the chief executive of the NIIF says the deal is the “culmination of an extensive process of collaboration with Adia to develop an investment structure that is attractive to international investors”.