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Shreyans Jain sources, evaluates and executes investment opportunities and builds, monitors and manages projects and projects under management in the subcontinent for the Manila-based independent advisory firm. He has extensive experience in capital raising, transaction advisory, management consulting and restructuring. In addition to his role at IFCL, Shreyans also serves as Consultant for Asian Development Bank. An exclusive interview by Sandeep Menezes.
With the current financial uncertainty, India’s policy paralysis and economic instability, how difficult is it to advise global investors eyeing India?
From being one of the most attractive investment destinations in emerging markets, all of a sudden attracting investments in the Indian infrastructure sector has become challenging primarily due to the uncertain regulatory environment. Foreign investors have become sceptical about the country’s growth prospects as entry barriers become tougher due to the growing land acquisition disputes and the slowdown in the Indian infrastructure development.
Thus, the role of an advisor in such a scenario has become increasingly important but at the same time it has also become more challenging. Advisors are now required to advise clients on multiple fronts such as regulatory, in the form of land acquisition and obtaining statutory clearances, social, in the form of resistance from local public and, of course, funding due to the confusing FDI regulations and the volatility of the local currency. Advisors are now required to perform a stricter due diligence when preparing the DPR to ensure most of these risks are mitigated.
What are some of the main reasons for apprehension among global investors?
The main selling point for India among global investors was the high growth prospects and the access to the world’s biggest market. While India still remains a huge market the derailment of the growth story has definitely made global investors apprehensive. Global investors are losing patience due to the policy paralysis, slowing growth, corruption scandals, high inflation and the widening fiscal deficit. A weak budget in March this year, with provisions to tax indirect investments, added to the woes of global investors. This panic has left global investors in search of exit options. However, India still presents a great opportunity due to the sheer size of its market and the flight of capital can be curtailed if the right policy decisions are taken to comfort global investors.
Nearly $1 trillion is to be invested in infrastructure development during the 12th Five-Year Plan period.
The India growth story has been hampered by its underdeveloped infrastructure. To give an example, electricity generation in the country is approximately 16-20 per cent short of what is needed to meet the peak demand, thanks to the underinvestment in this sector. This is complemented by weak transportation, housing and communication infrastructure, which has also restrained growth.
Investments in basic infrastructure such as power, transportation etc. directly lead to increase in the industrial output and thus a growth in the GDP. During the 11th Five-Year Plan India fell short of its targeted investments of $500 billion as it was able to spend only on $425 billion. Thus, to achieve sustained 9 per cent + growth rate, India needs to raise infrastructure spending to more than 10 per cent of its GDP. Therefore, the budget of $1 trillion, if properly utilised, will be a major boost to the GDP and cement India’s growth story.
What will be the impact of rupee volatility on India’s infrastructure development programme?
Among others, rupee volatility is a concern for foreign investors in the Indian market; however, infrastructure projects are characterised by long gestation period, thus short-term volatility is not very alarming. However, if the volatility continues, it would be worrisome. Investors who have already invested in the infrastructure sector and want to exit stand to lose as they would get less dollars for their rupee investments, but at the same time, dollar-based investors investing now would stand to gain, if the rupee appreciates significantly as they would be able to buy more dollars when they exit the market. Again, long-term investments will not be impacted by short-term currency volatility.
Which infrastructure segments are expected to attract maximum investment in near future?
All infrastructure sectors are not expected to grow at the same pace. Growth of a particular sector will depend on government’s focus on a particular sector and the attractiveness in terms of ROI private developers. During the 11th Plan nearly half the budget was allocated towards the road and power sectors. I think this trend would continue in the 12th Plan as well and more than half the investments would be directed towards these sectors followed by railways (metro), shipping (ports and harbours) housing and communication technology.
How can we sustain economic growth in the near future?
Among others, proper funding mechanism and a predictable regulatory environment are of paramount importance for the development of the infrastructure sector in India. I think that the government needs to take active steps towards the development of an active and liquid bond market for infrastructure financing and provide attractive tax incentives for lending to the infrastructure sector
On the regulatory front, the government needs to define a clear policy for land acquisition and provide clarity on the role to be played by the private sector in the development of infrastructure, specifically new and upcoming infrastructure sectors.
What is IFCL’s long-term vision for India?
IFCL is a global firm and a leading advisor for funding the infrastructure sector. IFCL partners with clients from private, public and non profit sectors to address the most critical funding and other challenges, supporting project preparation, documentation and marketing. We believe that the Indian infrastructure sector provides a huge opportunity and we will assist global investors in exploiting this opportunity by identifying and converting the highest value opportunities. Since India is a very different market from others and by combining the expertise of our local and global team we aim to deliver customised solutions which will yield the highest competitive and funding advantages for our clients.