On the right course

India’s infrastructure success is a relatively recent story, at least from the perspective of attracting long-term institutional investment.

One striking thought that came from hosting our inaugural India roundtable in New Delhi last month, was the realisation of just how recent the country’s success story is.

Of course, Ramesh Abhishek, secretary of India’s Department of Industrial Policy and Promotion, was more likely than most at the table to focus on progress over the past four years, after Prime Minister Narendra Modi and his Bharatiya Janata Party swept into power following a stunning victory in the country’s 2014 elections.

Yet, his fellow five participants were more than happy to join in with the plaudits, with most of them frequently harking back to more difficult times for India’s infrastructure space, from the last decade up until around 2012.

MK Sinha, chief executive of IDFC Alternatives (and soon-to-be co-head of Global Infrastructure Partners India), spoke of the “course correction” the sector has gone through since 2012, amending what he saw as undisciplined bidding from developers, indiscriminate lending from bankers and implementation deficiencies from governments.

Sinha wasn’t alone. Karunakaran Ramchand, infrastructure chief executive at IL&FS Group, described good times seen up to 2008, followed by bad times through to 2012, while Subahoo Chordia, head of Edelweiss’s infrastructure fund business, explained how some developers and contractors have been able to triple revenues over the past four years, due to the models on offer. Indeed, Sujoy Bose, head of India’s National Investment and Infrastructure Fund, said if investors want exposure to markets beyond the OECD, India is by far the largest in terms of opportunities.

While again, like Abhishek, Bose might have a reason for wanting to blow his own trumpet (given the NIIF’s relative immaturity), it’s difficult to argue with him, especially after IDFC and the NIIF have been recent recipients of major investments from GIP and the Abu Dhabi Investment Authority, respectively.

What’s striking – after all we heard from our participants about India’s past troubles and somewhat recent progress – is that few countries would be receiving this level of institutional interest, given the conservative nature of these investors would usually guarantee a ‘wait-and-see’ period to find out if the emerging market had finally ‘emerged’.

But India is different. In fact, sometimes the only thing letting the country down is its own ambition. Last year, the Indian government released figures showing it had only built about 55 percent of the total road kilometres it had intended to build in 2016/17, constructing 8,200km instead of 15,000km. The figure was still an all-time high and more than double the amount managed by the previous government.

It was a similar story in the renewables sector. A rather impressive 36GW of additional capacity has been supplied since 2014, according to the International Renewable Energy Agency, and, while this may still keep it on track, there remains much to do to fulfil the 175GW target of additional renewable power set by Modi four years ago. A concern was also noted by Sinha that India may be chasing installed capacity by numbers rather than having a genuine strategy to execute such projects.

As Bose was keen to point out during the roundtable, India is not necessarily alone in some of its travails. He highlighted similar struggles faced in the past by Australia and Europe, while the Turkish power sector has also been through a major rebuilding phase.

What India has done correctly – not just over the past four years, but also in the medium term – is channel its lessons learnt into several initiatives that have been key to attracting investment from large pension and sovereign wealth funds. It’s that foundation, along with some of the other reforms mentioned, that is giving hope the Indian market has turned an important corner.

As we have pointed out in the past, it’s always helpful to look beyond the sound and fury of ‘emerging markets’ and analyse what makes each country tick. For India, this government has certainly helped the country’s infrastructure sector move in the right direction.

Write to the author at zak.b@peimedia.com