India’s Interim Budget for the Financial Year 2009-10 by the Finance Minister on February 16, heralds the government’s spotlight on Infrastructure Development as a means to counter the prevailing economic woes. The minster responded to an urgent demand for new infrastructure, announcing that 9% of the country’s GDP will be spent on infrastructure by 2014, from the current 5%. Estimates suggest that a third of this investment will come from private companies, paving the way for unprecedented investment opportunity in a sector that has the appetite to absorb as much as $500 billion over the next five years.

Extending its visible hand to the sector, encouraging the public-private partnership (PPP) model, the government has already cleared 54 Central Sector infrastructure projects with an outlay of $14 billion in the financial year 2008-09 and spent an equal amount on 37 infrastructure projects so far while other 23 projects amounting to $6 billion approved for viability gap funding. Further, the corpus for the Rural Infrastructure Development Fund (RIDF) was increased to more than three times to $4 billion over the last five years.

However these initiatives pale when compared to China that spends about 11% of its GDP for infrastructure development, indicative of the scope and extent of scaling up needed in infrastructure development in India to match global standards.

The Government of India has yet again unfolded the red carpet to Foreign Investments by augmenting its Foreign Direct Investment (FDI) guidelines to provide the much needed capital injection to cash-starved sectors, such as retail, real estate & infrastructure, telecommunication, among others, that need capital infusion of more than $600 billion over a period of five to 10 years.

The new guidelines state that foreign holdings in a company with majority control of Indians will not be treated as indirect foreign investment in any downstream subsidiary, thus expanding investment opportunities for global investors seeking to be a part of the growth story of the world’s second fastest growing economy.

The easing of FDI norms fall in line with other growth initiatives and stimulus packages announced by the government last year, which have started showing revival trends in key sectors like steel, cement, automobile, food and beverages and fast moving consumer goods (FMCG).

The cement sector grew 10% in December 2008 as compared to November and the year on year increase of 11%. Steel declined steadily through September, October and November last year. The sector recovered in December 2008 and January 2009 touching the May 2008 figure of 22.86 metric tonnes when the sectoral growth rate was 4.1%. The automobile sector grew too, with the January 2009 figures in the passenger vehicles sales showing a 32% rise over December 2008 and commercial vehicles at 23% over a similar time frame. FMCGs and food & beverages have recorded a year on year growth of 26.4% and 28% respectively for the quarter ended December 31, 2008. Such growth trends across sectors send assuring signals of economic revival and corresponding profitable investments for investors.

The much talked about recessionary pressures haven’t deterred ambitious Private Equity (PE) firms that raised $400 billion globally. An assessment of the investment climate in the backdrop of unfavorable economic trends indicate that majority (63%) of the investors continue to pursue their search for profitable investment avenues this year, according to a survey of the top European family office investors conducted by Somerset Capital, a London-based investment advisory firm.

Among these active investors, 71% confirm their continued interest in the emerging markets of China and India, the economies with relatively firm footing (See Issue 4 | Volume 1; India: Power House of Global Growth), as investment destinations. See our Special Report on the investment trends in India.


Bundeep Singh Rangar
Chairman, IndusView
Bundeep.Rangar@IndusView.com
www.indusview.com