India’s new found focus on Infrastructure development has alerted industry experts, who believe it might replicate the Chinese growth model. To bear the burden of expectation, India will need to work extra hard to get support from investors at home and abroad, and to deliver on past promises.
A comparison with China is unfair in many ways. India has weaker government finances and a democratic government that lacks China's authoritarian discipline. Government clearances for roads or power plants in China are way easier to obtain in China, rather than India, where land rights are often hugely contentious. Government-backed companies have led China's infrastructure revolution, whereas India's push will depend heavily on the private sector. India, with its history of murky and investor-unfriendly rules on infrastructure investment, has a record of disappointment.
But under PM Manmohan Singh, the government is prioritizing Infrastructure development, with a special focus on roads. Kamal Nath’s appointment as Union Minister for roads and highways is widely seen as a sign of the post's new importance. His goal is to build 20 kilometers of new highway a day, for which he is seeking $41 billion in private-sector investment over the next three to four years.
Addressing the root of the problem at a conference co hosted by The Wall Street Journal Asia in New Delhi last month, Mr. Nath declared that of India's 70,000 kilometers of highways, 16,000 "aren't worth driving on," and that 40% of India's fruits and vegetables rot before reaching market because of delays from poor roads and rail lines.
But things seem to be looking up. Infrastructure companies have raised about $6.3 billion since the beginning of 2008 on the Bombay Stock Exchange, according to Dealogic. Most of that has been for power projects, though road companies have gone to market as well. Recently, a company raised a modest $138 million in an offering that began trading from March 30.
Wary of the risks involved, some foreign investors are showing interest in companies that have already taken on the greenfield risk. Singapore state investment firm Temasek Holdings Pte. Ltd. recently announced an investment of $200 million to fund existing projects. Last month, a consortium of global investors led by Morgan Stanley Infrastructure Partners agreed to invest $425 million in the infrastructure sector.
To attract other big investors, the Government is offering incentives that include a 10-year tax holiday and allowing foreign investors to take up to 100% of projects. New highway projects will come up for bidding soon; as many as nine megaprojects in the next few months, as confirmed by Mr. Nath. Terms such as those that set caps on tolls need to be attractive enough to attract quality builders, but tough enough to enforce quality control. As the government seems to have realized, building roads isn't enough. Building them to last and maintaining them is the key.
As Maggie Lee, who lead manages the Invesco Asian infrastructure fund put it, “In India, historically, they overpromise and underdeliver." However, if infrastructure investment takes off, she added, "India, over the longer term, could be theoretically more exciting" than China. The Indian Government would love to meet her expectations.
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