will India take to achieve infrastructure goals?

There is much skepticism as to whether India’s nearly $ 3 trillion economy is growing fast enough to meet Prime Minister Narendra Modi’s GDP target of $ 5 trillion for 2024-2025. But signs indicate that economic activity has bottomed out and foreign institutional investors are making big bets in India’s infrastructure sector,will India take to achieve infrastructure goals? Articles according to participants in a panel discussion at the recent Wharton India Economic Forum in Mumbai.

Foreign investors are attracted to “butterflies” or cash-generating assets, such as existing airports, to operate and use as a cushion to invest in entirely new projects, the panelists said. They are also optimistic about the increased transparency in project management, auction systems for the allocation of licenses for public funds, the existence of an upper layer of well-managed private companies and other market mechanisms such as the creation of financing platforms of infrastructure. , are scored.

According to C. Rangarajan, former governor of the Reserve Bank of India, the country’s central bank, the Indian economy will need to grow at a sustained rate of 9% over the next five years to reach its GDP target of $ 5 trillion. . . On January 20, the International Monetary Fund (IMF) lowered its growth forecast for India by 130 basis points to 4.8% for 2019-2020. In his World Economic Outlook update, IMF Chief Economist Gita Gopinath said that India’s growth slowed sharply “due to stress in the non-bank financial sector and weak income growth in rural areas. “.

Three statistics that matter

“At one level, the growth rate is an irrelevant number,” said Alok Kshirsagar, a senior partner at consulting firm McKinsey, which leads its risk practice in Asia. He noted that “we are obsessed with” the growth rate and cited three metrics that matter. The first is the pace of public and private investment, especially investment in terms of real capital spending and capital formation. The second is the growth rate of new income and jobs, such as employment created by e-commerce platforms in food delivery or taxis, he said. The third is the growth of income per capita, which is increasing according to government data.

The biggest challenge India faces is net new investment, which Kshirsagar says has been low as bank liquidity problems limit lending. “[That] has prevented much of the engines of the economy, such as the small and medium-sized business sector and supply chains, from growing and stalled them for the past two to three years,” he said.


Much of the pain caused by such cash problems is “self-inflicted,” Kshirsagar said. “I see this as an Indian business conducting itself in a ditch. About a year ago, everyone was convinced that the sky was about to fall. ” While some non-bank finance companies had “deep-seated problems” due to their involvement in corrupt practices and fraud, the problem was exaggerated.

“We have taken what could have been an isolated set of problems associated with five or six institutions – a bank, an NBFC, a mutual fund, and some real estate development companies – and turned it into an economy-wide problem,” he added . Kshirsagar said. . “We have to regain our confidence because we got into this ditch. We have to jump.”

The Indian government is trying to provide financing for infrastructure projects. One is the creation of the National Infrastructure and Investment Fund with investors such as the Abu Dhabi Investment Authority, Singapore’s Temasek and the HDFC Group. The government has also announced Rs. 100 billion ($ 1.4 billion) in infrastructure projects in the electricity, rail, urban irrigation, mobility, education and health sectors. Attempts to sell the stressed assets of Indian government banks and divest government holdings in state-owned companies are other encouraging signs. In the most recent Union budget, presented three weeks after the WIEF conference, the government set a divestment target of $ 2.1 trillion by 2021.