Power of Story Send a Tweet        
- Advertisement -
OpEdNews Op Eds

Where is the $1 TRILLION?

By       Message Swati Agarwal       (Page 1 of 1 pages)     Permalink

Related Topic(s): ; , Add Tags  Add to My Group(s)

View Ratings | Rate It

opednews.com

Author 93077
- Advertisement -

                                                               


Infrastructure Projects
(Image by Swati Agarwal)
  Permission   Details   DMCA


EPC News: 9 April, 2014: India: Mumbai: Some time back, while releasing the manifesto of the Congress party, Rahul Gandhi announced that if the UPA government is reelected, it would catalyze investments of $1 trillion in the infrastructure sector. Subsequently, the BJP released a manifesto that has a more detailed and credible road map for investing in the infrastructure sector, including big-ticket projects like a diamond quadrilateral for railways that includes bullet trains, 100 new 'smart' cities, a national gas grid, and much more. To that extent, infrastructure companies in verticals such as energy, power, roads and highways, EPC, construction, urban development, and mining have reason to be cheerful and optimistic about the future. It does appear as if the dark and gloomy clouds that have shadowed their prospects since 2012 will now be lifted. If you talk to senior professionals in the industry, they remind you of the heady optimism of 1999 when the Atal Bihari Vajpayee government had launched the ambitious golden quadrilateral project to modernize highways in India. There is a virtual consensus that the next government will have to catalyze, nurture and sustain many such national projects that will fire the national imagination.

- Advertisement -

But the trillion-dollar question is: where will the trillion dollars come from? If the next government is really serious about upgrading infrastructure in a meaningful way, it has to find about $200 billion every year to finance new power plants, mines, highways, gas field exploration, airports, ports and much more. Based purely on conditions and sentiments existing now, that looks like a really tall order. In the fiscal year just gone by, the total FDI inflows has stagnated at $22 billion, with just a portion of it going for

infrastructure projects. And we all know that it will take time for foreign investors to once again be enthusiastic about the India story even if the next government starts sending the right signals. Time lags are the norm in economics. And even then, it would be childish to expect that FDI inflows in the next five years riding on a wave of enthusiasm will reach what China attracts: $200 billion.

Then there is the option of borrowing from global financial markets. The fact is that this is the most tempting and tantalizing prospect for Indian infrastructure companies. There is an almost 10% differential between interest rates charged by Indian financial institutions and those in Europe and North America who base their interest rates on LIBOR. Spread over one trillion dollars, a 10% interest differential works out to a massive $100 billion for Indian companies in potentially saved costs and higher profits. But we all know even that is unrealistic. It is only the top-tier infrastructure companies that can access the global financial markets for borrowings. Mid-level and emerging companies based in India will inevitably have to depend on domestic sources for funds to finance their projects. Currently, though there is a boom in Dalal Street, the IPO market is virtually moribund with Indian companies raising barely Rs1500 crore from primary markets. And again, no matter how positive the signals that are sent by the next government, it will be a while before retail investors start trusting the primary markets again.

This indeed will be the challenge for both the next government and the infrastructure companies. From a peak of more than 38%, the savings rate in India has declined to a little above 30% in real terms. That is really the root cause of the fund squeeze as well as the slowdown in growth. Indian households need incentives to raise savings rate back to about 38%. And they need incentives to move savings away from gold and other physical assets to innovative financial instruments.  Therein lies the key to finding $1 trillion in the next five years. 

- Advertisement -

 

- Advertisement -

View Ratings | Rate It

opednews.com

Swati Agarwal writes on behalf of epcworld.in EPC world is a leading India’s Magazine which give news on sectors like Construction, Infrastructure, Real Estate News, Oil and gas news, Cement industry News, Roads and bridges as well as (more...)
 

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon Share Author on Social Media   Go To Commenting

The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Related Topic(s): ; , Add Tags
- Advertisement -

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Where is the $1 TRILLION?