May 16th, 2015 – India’s Prime Minister Narendra Modi announced that India is boosting investment in next-generation infrastructure. This announcement comes as India’s Prime Minister Narendra Modi is on an official visit to China. A Bloomberg article reports that India is committed to spending US$1 trillion to realize “China-like” infrastructure. The country is looking for innovative ways to fund this massive expansion. It illustrates the firm commitment of BRICS countries to realizing and updating infrastructure and boost their economies, but also shows the practical challenges ahead in terms of funding, realizing and sustaining it:
Some highlights from the Bloomberg article:
“To see the challenge Prime Minister Narendra Modi faces to improve India’s ailing infrastructure, ask the state-run company specialising in lending to the sector. It estimates US$750 billion of debt is needed for the task.
That’s more than twice the size of Singapore’s economy, and five times the existing 9.2 trillion rupees (US$144 billion) of bank loans to Indian infrastructure projects. The solution is to rethink current funding techniques, according to SB Nayar, the chairman of India Infrastructure Finance Co Ltd.
Modi’s agenda is focused on stoking investment, including clearing a backlog of 13.5 trillion rupees of stalled projects.
“Banks’ growth isn’t keeping pace with economic growth,” Mr Nayar said. “So there’s a gap. Indian banks have to raise more equity and become more profitable, get more investments, have a bigger balance sheet, lend more.”
His government has said infrastructure outlays will rise 700 billion rupees in the year through March 2016. Other steps include spending 200 billion rupees to establish a fund to spur infrastructure lending and permitting dedicated tax-free bonds.
At the same time, some of the initial euphoria about Mr Modi’s development agenda has begun to dissipate.
People need “confidence that investing in infrastructure, they would be in a position to get their money back and adequate returns,” said Hemant Kanoria, chairman of SREI Infrastructure Finance Ltd.
“There will be a huge requirement for railways, ports and shipping, airports and roads,” Mr Nayar said. “Knowing that banks will step back, we need to make a more active role.” – Bloomberg