Global financial hubs being approached.
With a sharp 62% decline in net foreign direct investment (FDI) to India in FY24 and a looming crisis in finding non-Budget funds to finance infrastructure projects, the Centre is preparing a multi-pronged action plan to attract long-term capital of an additional $50 billion per pear from abroad. Patient capital, as both debt and equity, is being sought to be tapped.
According to official sources, talks have been initiated with many countries, including the US and key European nations, where finance capital is parked. A complementary plan is to create a couple of Funds under the National Investment and Infrastructure Fund (NIIF) to pool investments in specific infrastructure projects, the sources said. With potential investors expressing concerns about the bankability of some of India’s large scale infrastructure projects, the action plan involves readying a clutch of large “investible projects”, where the investors have little to worry about return on investments, the sources said.
The Centre is targeting foreign investment in national highways and railways, which are currently funded through Budget as well as newer areas like green energy ventures such as solar, wind and green hydrogen.
Multiple departments are involved in the exercise, including the department of economic affairs, the department for promotion of industry and internal trade (DPIIT) and the ministry of new and renewable energy (MNRE), to ensure that investible project pipelines are readily made available, the sources said. “Sectors are now being identified. There will be a multi-pronged approach to get more patient funds,” one of the officials said.
Net FDI declined to $10.6 billion during FY24 from $28 billion in FY23, mainly reflecting higher repatriation. However, gross inward FDI almost remained stable at $71 billion in FY24 compared with $71.4 billion a year ago. Singapore, Mauritius, the US, the Netherlands, Japan and the UAE contributed to more than 80% of the flows to India in FY24.
“There is a lot of interest in the greener sustainable infrastructure investment among foreign investors. We have an understanding with the US while Europe is also willing to invest in such projects,” another official said.
Accordingly, the government has begun talks with a host of countries to reach an understanding to channelise a portion of their large pool of patient capital as India gradually moderates the public capex growth to achieve fiscal consolidation. “NIIF is looking at creating two funds to rope in foreign investors, including sovereign wealth funds. One is a general-purpose fund and another is a country-specific fund,” the second official said.
Currently, NIIF manages over $4.9 billion of equity capital commitments across its four funds – Master Fund, Private Markets Fund, Strategic Opportunities Fund and India-Japan Fund – each with a distinct investment strategy committed to supporting the country’s growth needs.
The government departments in a coordinated manner will clarify and address emerging issues related to investments for their faster resolution to make sure projects are investible and bankable.
India is currently the fastest-growing large global economy, which will become the third largest in the next three years with a $5-trillion GDP from $3.7 trillion in FY24. The International Monetary Fund (IMF) has projected India to reach the milestone by 2027-28.
With Indian banks being advised to go slow on project financing, there is a wider gap in funding that needs to be filled. According to an estimate, India requires nearly $2 trillion in infrastructure investment between now and 2030.
Source:financialexpress.com