$11b push to infrastructure planned

The government plans to create a Rs 50,000-crore ($11 billion) dedicated fund to set right the country’s creaking infrastructure and could raise 40% of the corpus from overseas investors, launching yet another assault on a problem that has defied solution for long and cramped India’s growth potential. The government plans to raise Rs 20,000 crore, or $4.4 billion, from foreign pension, insurance and sovereign wealth funds, and the remainder from domestic institutions. The decision to create the fund was taken at a high-level meeting in the Capital on Wednesday chaired by Planning Commission deputy chairman Montek Singh Ahluwalia. The government plans to constitute a committee to chalk out modalities in the next two weeks for the fund-raising exercise to start at the Indo-US CEO forum next month. Deepak Parekh, the chairman of Housing Development Finance Corp, and often a top troubleshooter for the government, will head the committee. Despite strong economic growth, factories across the country face power shortages, ports experience high turnaround time and travel time in urban centres can take hours even for covering short distances. Construction of physical infrastructure has been lagging in India, unlike China. The absence of a strong bond market and worries about project delays and returns have been holding back private investment. Power generation, road building, port construction and airport modernisation have fallen behind targets for years. Consultants McKinsey recently forecast that India needs to spend $2.2 trillion by 2030 to build city infrastructure alone where three-fourths of the country’s population is expected to live. Ratan Tata, chairman of the tea-to-telecom Tata Group and civil and military avionics maker Honeywell’s chairman, David Cote, cochair the Indo-US CEO forum. This is the second attempt by the government in about four years to raise a global infrastructure fund. When former Citigroup chief Charles Prince Jr was in India, a $5-billion fund was announced along with buyout firm Blackstone and Infrastructure Development Finance Co, or IDFC. But it failed to take off.The government subsequently began to rely on IIFCL to fund roads and ports. Although it has been lending, it is nowhere near what the nation needs. It disbursed Rs 9,000 crore in fiscal 2010 and aims for Rs 10,000 crore this year. It has limitations on capital and could lend mostly to government-backed projects. With the western business community looking to invest more in emerging markets such as India after a demand slowdown in home markets, this could be the right opportunity for the fund. A key selling point for this fund could be that IIFCL may provide a safety net to investors who choose to exit the fund before its maturity with a haircut of 5% of the residual nominal value. For global investors who have been losing money in various countries, including Greece, India may be a golden opportunity with sovereign backing for the fund.