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India’s need for infrastructure inspires public-private investment

The latest plans to tackle India’s inadequate infrastructure present novel ways for investors to access growth, says Nitin Jain, head of long-only equities asset management at Kotak Mahindra (UK).

Despite its underdeveloped infrastructure, India is predicted to achieve growth of up to 9.4 per cent in 2010. 

According to the Planning Commission of India, GDP growth is held back by 1.5 to 2.0 per cent every year because of a bottleneck in infrastructure expansion.

Corporate India is reporting strong growth and earnings but if India is to push through the double-digit growth barrier in the coming years, it needs much more investment – both public and private – in the power generation, transport and communications networks that support fast growing industry and services, says Jain.

The recent windfall received by the Indian government from its 3G and Broadband Wireless Access auctions has swelled government coffers. The auction for 3G spectrum ensured an inflow of USD22.8bn, over three times the original estimate of USD7.5bn from both the 3G and Broadband Wireless Access spectrum auctions. The auction for Broadband Wireless Access spectrum too had bidders committing over USD8.3bn. While these funds will be used primarily to lower the country’s fiscal deficit, they give the country a stronger position from which to press ahead with its ambitious plans for infrastructural development, says Jain.

The government’s next five-year plan, starting in 2013, looks set to include USD1trn of infrastructure development, with around half of this likely to come from private funds. This follows the USD300bn set to be spent in FY11 and FY12.

Jain says the government has already moved to streamline its policy framework to allow a bigger role for the private sector. This is an economic necessity, but also offers wider opportunities for investors. Special units have been set up to quickly resolve issues relating to land acquisition, and there are plans to revamp the contract model for engineering, procurement and construction projects, to make it easier for the private sector to tender.

Meanwhile, India is beginning to establish a reputation for delivering on landmark projects, such as the new state of the art terminal at Delhi airport. With the Commonwealth Games just around the corner, the integrated terminal is the second largest in the world. Built by a consortium comprising the Airports Authority of India, German-based Fraport and Malaysia Airports, the project is an example of what can be achieved through public private partnerships, says Jain. It took just 37 months to complete and will be capable of handling 34 million passengers a year.

The new joint venture between French industrial engineering major Alstom, state-owned Bhel and Nuclear Power is another example of the rise in public-private partnerships. The project will tap around 45,000 mw nuclear power expected to come up in India over the next ten to 15 years.

While these internationally significant projects grab the headlines, India is addressing its infrastructure issues at every level with the government targeting to build around 20 kilometres of new road every day. This would require an estimated annual spend of USD8bn to USD10bn.

Jain says confidence that projects involving public-private partnerships can be delivered successfully means that the logic behind Indian infrastructure investment is more convincing. 

Jain manages the investment strategy of Kotak’s four Luxembourg-domiciled Ucits III Sicavs, including the India Infrastructure Realty Fund. The fund primarily invests in listed shares and equity linked instruments of companies directly or indirectly linked to the infrastructure and realty sectors in India.

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