India has been projected as one of the world’s most attractive investment destinations as a result of massive economic and policy reforms over the last three decades, focusing on liberalisation and globalisation. The Indian economy grew at a rate of 6.53% in 2018-19 and is projected to grow at a rate of 4.04% and -7.96 % during 2019-20 and 2020-21, respectively.
Prime Minister in 2019 envisioned making India a USD 5 trillion economy and a global economic powerhouse by 2024-25. The finance ministry’s Economic Survey 2018-2019, which captures key economic developments and also projects medium term objectives, stated that private sector participation in the infrastructure space is crucial as funding cannot depend on public investment alone. The budget presented by the Finance Minister in FY 2019-20 and FY 2020 – 21 had also given a big push to infrastructure spending and monetisation of assets through the National Infrastructure Pipeline and National Monetisation Pipeline.
Though it appears that the government and public institutions continue to provide a large chunk of the funding for these projects, on the other hand the government and IFIs have continued to emphasise the role of private investors and corporations as a critical component for executing infrastructure projects. This rising trend in private investments in the country is closely interlinked with the changes in the policy and regulatory regimes that govern such investments.
In 1991, the Indian government established a list of industries where Foreign Direct Investment (FDI) would be automatically authorised up to 51 percent (Foreign Equity). To speed up the development of the power sector, 100 percent foreign equity participation in the construction of power facilities was permitted. Profits and other incentives could be freely repatriated as a result of such equity participation. FDI was also permitted in oil exploration, production, and processing, as well as gas marketing. Private investors in the power sector might also own and operate captive coal mines.
Another major step towards encouraging private investment was recognition of financial institutions as eligible bidders for the infrastructure projects. Bringing FIs to bid for projects upfront, rather than passively acquiring strategic stakes in them, this claimed to serve a multi-fold purpose: (a) cash-rich FIs are able to offer competitive yet bankable bids; (b) project developers are relieved of the pressure of upfront infusion of significant equity; and (c) parties are better positioned to assume risks suite. From the government side, fast track investment clearances, incentive programmes, land banks, and more liberalised environmental clearance requirements are among the policy modifications that promise to entice investors with faster processes and larger returns.
A monitoring of private investments in some of the infrastructure projects in India over a period of five years has shown some interesting trends. The data is collected from the public sources for the period 2016-2020, such as news reports, press releases, annual reports, company statements, etc.
Looking at different sectors of infrastructure investment, the data implies that Financial Intermediaries (which includes National Investment and Infrastructure Fund- NIIF, Non Banking Financial Companies- NBFCs) has been given more priority by the private investors as it recorded the highest investment of USD 57,700 million (Rs 4,27,564 crore) over the past five years, followed by Digital Infrastructure (which includes telecom towers, fiber optic networks, data service provider) with a total of USD 56,342 million (Rs 4,17,498 crore), Oil & Gas (which majorly includes investment in gas pipeline, refinery, petroleum, crude oil and natural gas) USD 48,282 million (Rs 3,57,772 crore) and Real Estate (this includes residential and affordable housing projects, office space, shopping malls, business park, office park, hotels) USD 24,219 million (Rs 1,79,486 crore).
As fund-wise, the highest investment in last five years has been made by Sovereign Wealth Funds which is recorded as total USD 84,053 million (Rs. 6,22,842 crore), followed by Real Estate Investment Trusts USD 38,205 million (Rs 2,83,104 crore) and Private Equity Funds USD 24,652 million (Rs 1,82,689 crore).
If we look at the country-wise investment data, it shows that the highest amount of investment is made by Saudi Arabia with USD 47,008 million (Rs. 348,329 crore), followed by Canada USD 44,892 million (Rs. 332,661 crore), Saudi Arabia and Abu Dhabi collaboratively invested total USD 44,500 million (Rs. 3,29,745 crore). Other countries that feature in the list of top five are, USA USD 21,575 million (Rs.1, 59,887 crore), Singapore USD 18,784 million (Rs. 1, 39,195 crore).
As per the company-wise data, it is observed that Saudi Arabia’s Public Investment Fund (PIF, Saudi Arabia Oil and Company (Aramco), Brookfield Asset Management, GIC Private Limited (GIC), Blackstone Group, Abu Dhabi Investment Authority (ADIA), KKR & Company, Canada Pension Plan Investment Board (CPPIB), Reliance Industries Ltd (RIL), Qatar Investment Authority (QIA), India Grid Trust (IndiGrid) remain the top ten funds which lead the way in infrastructure and energy investment in India during 2016-2020.
With the number of private investments coming in India and the policies being modified to encourage them, it signifies that funding from private players may play a critical role in shaping the overall economy of the country. Though some serious concerns have been raised regarding the expected transfer of public assets, which could end up in the hands of few industrial/corporate houses/ private investors, especially because these could be for public welfare projects. It may result in giving entire control and operations of all major ports, airports, rails, roads, roads, highways and other infrastructure in the hands of few private players creating monopolies. These initiatives may affect the interests of common and marginalised people in the long run, as the regulatory checks and price limits on these private participants are a concern. This creates uncertainty on the accessibility of government services to ordinary people.
Note: This note is based on the forthcoming report on Private Investments in India over the past five years.
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