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Need of Foreign Capital in India via Infrastructure Boost: Target 2018 for Narendra Modi

Founder, 335bazaar.com
Jan 19, 2018 12:44 PM 3 min read
Editorial

John D. Rockefeller once remarked “The secret to success is to do the common things uncommonly well”.

 

Year 2017 was one such year in which India did the “common things” well, with an eye to attract investments in infrastructure and real estate. These include conception and implementation of effective policies and subsequently penalizing those who did not abide by the rules.

 

With the execution of the Insolvency and Bankruptcy Code 2016 and Real Estate Regulation and Development Act (RERA Act), India took some bold steps towards an efficient and transparent corporate ecosystem. Subsequent changes made to the IBC showed flexibility and awareness on part of the policymakers.

 

Crackdown on non-compliant companies and their directors by the Securities and Exchange Board of India (SEBI) showed the regulator’s resolve to push for higher standards of corporate governance.

 

All in all, there was some good groundwork done in 2017 to build on in the coming years.

 

It is of paramount importance that Indian policymakers and regulators forge ahead with the changes in 2018 and do not refrain from making hard decisions.

 

At one of the investor conferences held in Singapore in July 2017, I had the opportunity to interact with some of the most influential infrastructure investors in the industry and discuss with them their views on the future of infrastructure in Asia.

 

Two aspects of the discussions stood out for me. First was the interest to invest in India. Whether it was the renewable energy panel or the toll roads panel, investors were keen to invest in India with an eye on the next 25 years of India’s growth trajectory.

Investment in Infrastructure

The second aspect that struck me was the inclination of investors to primarily invest in brownfield (existing) projects relative to greenfield (new) projects. This preference needs to be altered by bringing in new policies and regulations.

 

Institutional foreign capital needs to be encouraged to take on more greenfield risk (investing in new projects) in the infrastructure space such as the construction of a toll road.

 

In order to encourage investments in greenfield projects, it is essential that India creates an investment ecosystem with even greater transparency and accountability than the current one.

 

To do so, India must continue to frame, change and implement old and new policies in 2018, as successfully done in 2017.

 

Credit markets, rules and contracts need to be respected. Successful implementation of policies such as IBC and RERA encourage corporations to take business risks in good projects as opposed to bad ones. Better project selection for risk taking ensures that capital is allocated most efficiently to profitable projects.

 

An efficient market that rewards good risk taking and penalises poor risk taking, policies that protect investor interest and a mechanism to expedite problem resolution, taken one with the other, create efficient flow of capital.

 

Such efficient flow of capital rewards the investor sufficiently to take on risks inherent in greenfield projects. Increasing foreign investment in India's greenfield infrastructure projects is a key priority. Delivering results under the new rules and regulations in 2018 will further boost greenfield infrastructure project investment.

 

There are those who are pleased with regulatory changes and the subsequent implementation carried out in India in 2017 and then there are the naysayers. For both sides, it is important to understand that the process of reforms and the consequent impact are glacial processes. India currently finds itself in a good spot on the global map with a growth rate that is still relatively high vs. the growth rates of developed economies, a growing middle class and a world keen to invest into India. Keeping up the good work of 2017 is important. Remember “Rome wasn’t built in a day”!

 

Originally Published in Financial Express