In the past few years, there has been an influx of foreign capital into the country’s infrastructure sector. Large corporates, revenue generating infrastructure assets and high growth potential companies have caught investors’ attention.
The influx of foreign direct investment (FDI) into India is estimated to surpass $100 billion in 2022-23 owing to major economic reforms and enhanced ease of doing business. India’s economic growth in 2022-23 is predicted to be among the highest in the world, with real GDP growth exceeding 8 per cent, nearly a full notch higher than the Reserve Bank of India’s projection of 7.2 per cent.
Additionally, the PHD Chamber of Commerce and Industry (PHDCCI) proposed a 10-point approach for boosting national economic growth and achieving the goal of being a $5 trillion economy within five years. The recommendations include expediting infrastructure projects, expanding the scope of the production-linked incentive (PLI) plan, increasing public investment in agriculture, and tackling high commodity prices and raw material shortages.
The government’s National Infrastructure Pipeline programme encourages private and foreign investment in the infrastructure sector. The country is positioned as a favoured investment location for global investors.
While Covid-19 dampened the global investment climate during 2020, long-term investors continue to bet big on India’s infrastructure sector. This is because they make geographical investments based on a long-term perspective and investment strategy.
The infrastructure sector attracted foreign investments worth over $8 billion across the logistics, telecom, oil and gas, road, power, water and waste management, and renewable energy sectors during the period October 2021-March 2022. This includes asset acquisitions, stakes in infrastructure companies, platform investments/joint ventures and bond issuances. The renewable energy and logistics sectors recorded 20 deals worth over $2 billion during the aforesaid period.
Logistics is a fast growing sector with huge growth potential. The month of February year alone saw a collective foreign investment of $640 million in Loadshare Networks Private Limited, Expressbees and ElasticRun. However, government monopoly sectors such as ports have not been able to pique investor interest due to the limited scope and opportunities for investment.
Given its restricted horizon, the railway sector has of late emerged as a bright spot in the otherwise bleak panorama of infrastructure. The Indian Railway Finance Corporation (IRFC) raised $500 million in green bonds as part of its $7 billion global medium-term note (GMTN) Program and also became the first central public sector enterprise (CPSE) to list its green bonds exclusively on the IFSC exchanges.
Strategic players have been strengthening their presence in India through an inorganic growth strategy. Telecom and oil and gas have seen some big-ticket investments. A significant advancement in these sectors is Reliance Industries’ $4 billion (about Rs 300 billion) debt raising in the largest foreign currency bond issuance by an Indian corporate. This is India’s largest-ever foreign currency bond transaction, surpassing ONGC Videsh Limited’s $2.2 billion US dollar bond issuance in 2014. Reliance raised $1.5 billion in a 10-year transaction with a coupon rate of 2.875 per cent, $1.75 billion in a 30-year deal with a coupon rate of 3.625 per cent, and $750 million in a 40-year offering with a coupon rate of 3.75 per cent. About 53 per cent of the funds were raised in Asia, 14 per cent in Europe and 33 per cent in the US.
The water and waste management sector has also been garnering foreign private equity and venture capital funding in the past two to three years, the underlying theme being impact investment. Morgan Stanley India and existing investors invested $22 million in Recykal, a waste management start-up, in January 2022.