Infrastructure Today | June 2008

Cashing on India

It’s a veritable manna from the heavens for India’s infrastructure minders. Global fortune hunters have been arriving in droves on India’s burgeoning infrastructure frontiers to pan for business gold and to lasso a bright future. Taking a fancy to the projects coming up across the country, venture capitalists and private equity investor juggernaut put close to $14.2 billion on India through 390 deals during 2007 – almost double of what it clocked in 2006 at $7.5 billion. The inflows were into energy, ports, shipyards, telecom and the road sectors. Power attracted the maximum moolah followed by sectors like telecom, ports and roads. A number of factors have contributed to turn India into a lucrative destination for foreign investors. Foremost being the high and sustainable levels of economic growth that the country has been witnessing. The economy enjoyed GDP growth of nine per cent in the financial year ending 2006 and 9.4 per cent in 2007. Citigroup estimates that the growth levels during 2008 and 2009 will be 9.3 and 9.4 percent respectively. In this respect India is far ahead of the mature economies like the United States whose GDP is forecast to be below four per cent, Japan and the European Union whose GDP will be around two per cent or below in the next two years. China is the only country that is expected to perform better than India, with a forecast of around ten per cent. The robustness of India’s growth is also indicated by the Bloomberg survey of January 2008, which puts the Indian market as the eighth largest in the world. The report states that there are some 7,000 companies that are listed on the Indian Stock exchanges with over 225 companies having a market capitalisation of over $1 billion. The total stock market capitalisation stood at some $1.81 trillion at the end of 2007, compared with $1.40 trillion for Brazil, $0.99 trillion for Russia and $4.46 trillion for China. Corporate earnings in India have grown at a fantastic rate of 28 per cent over the last four years and are expected to grow at over 20 per cent in 2008 and 2009. FDI inflows, the bulk at present going into the country’s stock markets, are estimated to form around 10 per cent of India’ s foreign exchange reserves, which stood at $309.16 billion including gold and special drawing rights at the end of March 2008.

Indeed the huge swell of investments point to a changing mindset. It dispels old notions that only the government can and should provide all public infrastructure service. It is also a tribute to the emerging phenomena of public private partnerships – which can be seen in areas such as telecom, roads, ports, civil aviation and airports leading to visible improvement in service quality, time and cost. The foreign investor, it must be remembered is loath to put all his eggs in one basket and is merely trying out the turf. Despite its huge potential at the moment India is assuredly not the best place to do business in the world. If India is to accomplish its goal of developing world-class infrastructure to match the strides of the Chinese dragon it must learn to slough off its old inertia, take the road to reform.
Only that can keep the PE honeymoon in India from souring.