India's Singh, Seeking $150 Billion, Courts, Snubs Investors
Indian Prime Minister Manmohan Singh's plan to attract $150 billion for roads, ports and power supply systems may flounder because the government won't allow overseas investors in on the terms they want.
Fifteen years after Singh, as finance minister, started welcoming foreign funds, his government is balking at permitting unrestricted access. That jars because he's counting on fresh capital to help boost growth to 10 percent annually from 8 percent, the second-fastest among the world's biggest economies.
``Most often we get painted a very rosy view for the future, but what gets missed is what can go wrong with the India story,'' said David Goss, co-managing director at UOB Global Capital, who helps manage about $15 billion in assets in New York. ``Some of the policies, though well-intended, sometimes are half-hearted attempts.''
India's infrastructure -- with airports unable to cope with rising air travel, ports that can't handle increased trade and factories halted because of power shortages -- is the biggest obstacle to faster economic growth. To help drum up funds, Singh's sending his power and aviation secretaries to a Merrill Lynch & Co. conference in New York starting today.
Singh in 1991 started lifting some restrictions on overseas investment, allowing funds to take minority stakes. Communist allies in his coalition government are opposed to raising these overseas investment limits.
In areas where curbs have been lifted, the government has imposed other rules. In July 2004, while the foreign ownership limit in airlines was raised to 49 percent from 40 percent, overseas carriers were barred from owning stakes.
Investment Policies
``The policies are laid out but sometimes the practicality of implementation is not there,'' said Goss, who attended last year's Merrill Lynch India Investment Forum and isn't sure if he'll go this week. ``When a policy is announced, we get the impression it's all done but the devil is in the details. I am a big bull on India, but we should not lose sight of the wood for the trees.''
Malaysia Airports Holdings Bhd. and Fraport AG have teamed up with Indian companies by taking minority stakes in joint venture companies that bought airports at New Delhi and Mumbai. The upgrades may cost as much as $3.5 billion, according to the Indian government.
Investors such as Istithmar, a Dubai, United Arab Emirates- based company, have invested in Indian airlines. Carriers such as Virgin Atlantic Airways, whose billionaire founder Richard Branson wanted to invest in India, wouldn't be given permission, the government has said.
Airport Sale
The sale of stakes in the nation's two busiest airports at Mumbai and New Delhi, outdated, overcrowded and in poor condition, was delayed because of political opposition and 10 years of discussions. The government then cut the stake overseas investors could own to 49 percent from the 74 percent that was earlier permitted.
Having overcome these obstacles, the investors who won the bidding and have taken over the airports have already begun work to modernize the crumbling facilities. They still face litigation by rival groups that could derail the process, apart from resistance by the communist parties.
``Infrastructure is definitely moving at a slow pace in India. The demand is ahead of the pace of construction,'' said Rob Lutts, president and chief investment officer at Cabot Money Management, who manages $400 million in assets including emerging markets. ``The revenue the government receives is not flowing into infrastructure areas efficiently. That is a real challenge I think and a limitation to growth.''
Lutts, who attended the Merrill conference in Jaipur in February, may not attend this one, he said.
Doubling Capacity
In ports, India wants to more than double the capacity its 199 ports can handle to 2 billion tons by 2016 from 750 million tons now.
``If we want to achieve this, and achieve this we must because of the economic growth, then policy changes and reforms are needed from the government's side,'' A.K. Mohapatra, India's shipping secretary, said on Sept. 13. ``Only private investments will come in.''
DP World is building a $500 million container terminal in southern India's Kerala state. DP World will initially invest $135 million in the project to build a trans-shipment terminal, the company said last year. Other companies such as P&O Ports have also invested in container terminals in India.
India's National Maritime Development Program anticipates investment of about 558 billion rupees ($12 billion) in the port sector, the bulk of it to be attracted from private companies.
`Special Situations'
``Considering the special situations in India, what can work best is a public-private partnership model,'' Mohapatra said. ``Our greatest hope lies in making the public-private partnership a big success.''
Good infrastructure and development are directly related.
Finance Minister Palaniappan Chidambaram said in his February budget that the government plans to spend 992 billion rupees on infrastructure in the fiscal year that began April 1, a 24 percent increase from the previous year and about 3.4 percent of gross domestic product. China probably spent about $150 billion on infrastructure last year, equal to about 11 percent of economic production, Chetan Ahya, an economist at Morgan Stanley in Mumbai, estimated in March.
``There's no question about India's attractiveness,'' said Goss. ``The problem is the short-term ups and downs we are seeing.''
Indian Prime Minister Manmohan Singh's plan to attract $150 billion for roads, ports and power supply systems may flounder because the government won't allow overseas investors in on the terms they want.
Fifteen years after Singh, as finance minister, started welcoming foreign funds, his government is balking at permitting unrestricted access. That jars because he's counting on fresh capital to help boost growth to 10 percent annually from 8 percent, the second-fastest among the world's biggest economies.
``Most often we get painted a very rosy view for the future, but what gets missed is what can go wrong with the India story,'' said David Goss, co-managing director at UOB Global Capital, who helps manage about $15 billion in assets in New York. ``Some of the policies, though well-intended, sometimes are half-hearted attempts.''
India's infrastructure -- with airports unable to cope with rising air travel, ports that can't handle increased trade and factories halted because of power shortages -- is the biggest obstacle to faster economic growth. To help drum up funds, Singh's sending his power and aviation secretaries to a Merrill Lynch & Co. conference in New York starting today.
Singh in 1991 started lifting some restrictions on overseas investment, allowing funds to take minority stakes. Communist allies in his coalition government are opposed to raising these overseas investment limits.
In areas where curbs have been lifted, the government has imposed other rules. In July 2004, while the foreign ownership limit in airlines was raised to 49 percent from 40 percent, overseas carriers were barred from owning stakes.
Investment Policies
``The policies are laid out but sometimes the practicality of implementation is not there,'' said Goss, who attended last year's Merrill Lynch India Investment Forum and isn't sure if he'll go this week. ``When a policy is announced, we get the impression it's all done but the devil is in the details. I am a big bull on India, but we should not lose sight of the wood for the trees.''
Malaysia Airports Holdings Bhd. and Fraport AG have teamed up with Indian companies by taking minority stakes in joint venture companies that bought airports at New Delhi and Mumbai. The upgrades may cost as much as $3.5 billion, according to the Indian government.
Investors such as Istithmar, a Dubai, United Arab Emirates- based company, have invested in Indian airlines. Carriers such as Virgin Atlantic Airways, whose billionaire founder Richard Branson wanted to invest in India, wouldn't be given permission, the government has said.
Airport Sale
The sale of stakes in the nation's two busiest airports at Mumbai and New Delhi, outdated, overcrowded and in poor condition, was delayed because of political opposition and 10 years of discussions. The government then cut the stake overseas investors could own to 49 percent from the 74 percent that was earlier permitted.
Having overcome these obstacles, the investors who won the bidding and have taken over the airports have already begun work to modernize the crumbling facilities. They still face litigation by rival groups that could derail the process, apart from resistance by the communist parties.
``Infrastructure is definitely moving at a slow pace in India. The demand is ahead of the pace of construction,'' said Rob Lutts, president and chief investment officer at Cabot Money Management, who manages $400 million in assets including emerging markets. ``The revenue the government receives is not flowing into infrastructure areas efficiently. That is a real challenge I think and a limitation to growth.''
Lutts, who attended the Merrill conference in Jaipur in February, may not attend this one, he said.
Doubling Capacity
In ports, India wants to more than double the capacity its 199 ports can handle to 2 billion tons by 2016 from 750 million tons now.
``If we want to achieve this, and achieve this we must because of the economic growth, then policy changes and reforms are needed from the government's side,'' A.K. Mohapatra, India's shipping secretary, said on Sept. 13. ``Only private investments will come in.''
DP World is building a $500 million container terminal in southern India's Kerala state. DP World will initially invest $135 million in the project to build a trans-shipment terminal, the company said last year. Other companies such as P&O Ports have also invested in container terminals in India.
India's National Maritime Development Program anticipates investment of about 558 billion rupees ($12 billion) in the port sector, the bulk of it to be attracted from private companies.
`Special Situations'
``Considering the special situations in India, what can work best is a public-private partnership model,'' Mohapatra said. ``Our greatest hope lies in making the public-private partnership a big success.''
Good infrastructure and development are directly related.
Finance Minister Palaniappan Chidambaram said in his February budget that the government plans to spend 992 billion rupees on infrastructure in the fiscal year that began April 1, a 24 percent increase from the previous year and about 3.4 percent of gross domestic product. China probably spent about $150 billion on infrastructure last year, equal to about 11 percent of economic production, Chetan Ahya, an economist at Morgan Stanley in Mumbai, estimated in March.
``There's no question about India's attractiveness,'' said Goss. ``The problem is the short-term ups and downs we are seeing.''