Economy News

India to bet big on foreign capital for capex boost; talks being initiated with a host of countries for pacts on long-term capital

So, the government will clarify and address emerging issues related to investments for their faster resolution to make sure projects are investible and bankable, the official added.

The government has begun talks with a host of capital-rich countries to explore ways to route larger portions of their abundant pool of patient capital to India to support the country’s economic growth on a durable basis. The move comes in the backdrop of a moderation of public capex growth.

“Going forward, government investment shall be a catalyst, not the mainstay (for fixed asset creation),” an official said. With domestic private investments yet to accelerate, the focus is to take proactive steps to attract long-term, low-cost capital from abroad for the infrastructure sectors to sustain economic growth.

Talks have been lined up with several countries including Saudi Arabia, the United Arab Emirates, Japan, South Korea, Australia, Norway, the US and Canada to reach an understanding with them on mechanisms to channelise their sovereign wealth, pension and insurance funds looking for stable long-term returns to India. An agreement on these lines has already been reached with the City of London.

“The government aims to work in close consultation with global partners and investors to identify the risks in investing in Indian infrastructure and work on risk mitigation measures,” the official said.

So, the government will clarify and address emerging issues related to investments for their faster resolution to make sure projects are investible and bankable, the official added.

India is currently the fastest-growing large global economy which, according to the International Monetary Fund, will likely become the third largest by 2027-28 with a $5 trillion GDP up from $3.7 trillion in FY24. It now appears hat the Indian economy will achieve a growth rate at or above 7% for FY24, and some predict a similar growth in FY25 as well.

Among the sectors, ports and airports are attracting private capital as returns are very good. The government is targeting foreign investment in national highways, railways and green energy ventures such as wind and green hydrogen.

The key infrastructure and strategic ministries such as road transport and highways, railways and defence drive government capital expenditure. The government has been fully funding highways and railways investment in the last few years, but it has to scale down that going forward to make resources available for other developmental activities.

The government is trying to consolidate the fiscal deficit below 4.5% of GDP by 2025-26 as per the medium-term fiscal consolidation target. Accordingly, the capex outlay could see up to 16.9% growth in FY25BE over FY24RE, compared with a 30% compounded annual growth rate between FY21 to FY24.

The capex-to-GDP that will reach 3% in FY24 and will likely be maintained at that level. That would mean the annual growth rate in capex will keep moderating going forward. According to an estimate India requires nearly $2 trillion in infrastructure investment between now and 2030.

According to Vision for 2047 to become a developed nation, which would be unveiled by early March, India’s investment needs to be around 32% of GDP by 2030 from around 29% now, before rising to 34% by 2040 and to around 35% by 2047. India is aiming for a USD 30 trillion economy by 2047 with per capita GDP rising from USD 4,418 in 2030 to USD 10,021 in 2040 and USD 17,590 (trait of a developed nation) in 2047.

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