Macquarie of Australia is the largest private owner of infrastructure assets in the world, with 109 assets across 25 countries. It manages 31 funds with equity under management of over $41 billion. Recently, Macquarie announced its plans to launch an infrastructure fund in India. Nick van Gelder speaks to Venugopal Pillai on Macquarie's plans and outlook for India.

The recent $2 billion India fund where Macquarie is a co-investor is Macquarie's first dedicated India fund. What are your future plans?
Macquarie, along with the State Bank of India, announced its intention to raise a $2 billion fund in April this year. It is scheduled to launch in the second quarter of 2008. Macquarie is open to looking at a range of opportunities but it would be premature to comment on other possible funds.
We believe $2 billion is a fair and reasonable size that reflects well the infrastructure investment opportunities, the projects identified for development, and the level of investor demand we are seeing in India today. Going forward, however, I think you could expect to see us raising more capital than just the headline figure. Through this fund we expect to be reviewing or competing in every significant infrastructure investment opportunity in India over the next decade.
Which sectors apart from infrastructure will Macquarie look at in India?
Macquarie's advisory business in India provides a wide range of financial services to top-tier Indian clients including traditional mergers and acquisitions, principle and fund raising transactions. Macquarie is a full service corporate advisor in India across a range of sectors including infrastructure, resources, industrials, technology, telecom and media.
Macquarie also offers institutional equity sales and trading, derivatives sales and trading, equity research, equity capital markets, corporate advisory, funds management, real estate and wealth management services in India.
What is Macquarie's outlook on renewable energy sector?
The Indian government has the only ministry of new and renewable energy in the world, which shows that the government considers renewable energy as a significant part of developing infrastructure and the power sector within India. With the growing population and the corresponding increase in power usage, renewable power solutions are in high demand in India.
The renewable energy sector is dominated by the exponential growth of wind farm development, which is gaining increasing interest from international investors. We expect wind to dominate renewable energy in India in the short term with other technologies such as solar and biomass becoming more prominent in the medium to longer term.
How does the investment in India compare with that in other emerging economies in which Macquarie is involved?
Developing countries whose economies are in a transitional phase can be subject to a degree of instability. However, unlike other emerging markets where there is a greater risk of adverse effects resulting from political, economic and social factors, India has developed a regulatory framework that mitigates many of the risks associated with government policy, taxation and the legal system in an emerging market. India has also developed model concession agreements and, unlike other emerging markets, has a good pipeline of projects.
Another difference between India and other emerging markets is that in India the population generally expects to pay for the use of infrastructure. The main users of infrastructure in India are the middle classes and, as their disposable income and per capita wealth grows, they have increased capacity and willingness to pay for services. We expect more than 65 per cent of the Indian population to be of working age by 2025. That activity will create more wealth and more capacity to pay for infrastructure.
India represents an exciting opportunity for the global investment market. India is now the world's 12th largest economy, with forecast 2008 GDP of approximately $1.2 trillion. GDP is forecast by some commentators to surpass Japan by 2032 to become the world's third largest economy behind the US and China.
What are the most important factors that merit India's inclusion in Macquarie's global portfolio?
The infrastructure opportunities in India are tremendous. Importantly, the government has also opened the door to private involvement in the provision of  infrastructure. It has been estimated that India will require almost $500 billion in private sector equity investment in infrastructure development over the next five years.
The opportunity is underpinned by numerous observable demographic, economic and political characteristics of the Indian market. These include:
u A favourable Indian demographic profile where by the year 2025 the median age of India's population will be considerably lower than other major economies such as the US, UK and Germany. This "demographic dividend" is expected to drive a substantial increase in labour supply, strong growth in the Indian population's savings capacity, increased capital for domestic investment and, ultimately, enhanced economic growth prospects for the economy as a whole.
u India is the world's largest democracy by population, with a well established parliamentary system and independent executive, legislative and judicial branches of government. This relatively stable democratic environment is considered highly favourable from an international investor's perspective.
u India's domestic consumption is expected to continue its strong upward trend as the middle class grows. Some estimates suggest that the middle class will grow by over 10 times its 2005 level to reach 583 million by 2025. The accompanying increase in the wealth of the Indian population will drive a proportional shift in spending patterns away from basic necessities towards discretionary consumption items. This shift represents a significant potential for further economic growth.
Besides funding infrastructure projects, what is Macquarie Group's outlook for developing infrastructure projects in India? [We understand that Macquarie Bank had tied up with Gammon India for the Chennai airport modernisation project.]
The outlook for infrastructure investment in India is very positive. Population growth, urbanisation and the demands of an increasingly consumer-driven society have placed pressure on existing infrastructure in a range of sectors, including electricity generation, telecommunications, airports, water and sanitation.
There are currently many greenfield investment opportunities in India but, as the market matures over the next 5-10 years, more and more brownfield projects will become available as investors recycle their capital.
The airports sector in India is an exciting story. Capacity is currently severely constrained. Macquarie Capital is actively seeking to expand its airport investment and financial advisory franchise in the Asian aviation sector and is looking at a range of opportunities.
In the next 5-10 years every airport in India will require either upgrade or expansion and Macquarie has significant experience and expertise in developing non-aeronautical revenue. We are looking at all infrastructure investment opportunities in the aviation sector.
India's infrastructure development ambitions rest largely on private sector participation. Do you have any specific recommendations to make to the government to expedite private and foreign sector participation?
In many states in India, governments have initiated the privatisation of infrastructure assets or have sought private sector financing of new infrastructure projects with the goal of reducing debt, allowing market forces to determine the most efficient means of infrastructure financing, improving efficiency and providing more visible benefits to communities.
The government has already undertaken positive steps to address its infrastructure deficit and enable private participation in India's infrastructure requirements, including policy changes and legislative amendments.
The high participation of the private sector across so many sectors in India suggests that developers, sponsors, banks and equity providers have confidence that there is sufficient equality and fairness in the system and that their expectations of reasonable results can be met.
Macquarie is exceptionally well positioned to take advantage of the emerging opportunities for the private sector in India through its partnership with the State Bank of India. Teaming Macquarie's unparalleled infrastructure-related experience in the global markets with a strong local partner creates an exceptionally strong partnership for the sourcing and execution of direct equity investments.
Through our new $2 billion India fund, Macquarie and SBI is looking to raise capital domestically as well as internationally and we would expect Indian capital to continue to play an increasingly important role in funding its own infrastructure development.