India plans US$11bn infrastructure fund, to inch closer to China
May 14, 2010

Realizing that India’s creaking infrastructure is a major roadblock for the country, New Delhi said it was planning to set up a 500 billion rupee ($11 billion) debt fund to build ports, roads and bridges needed to drive economic growth. The Indian government plans to raise 40 percent of the fund (Rs 20,000 crore, or US$4.4 billion) from overseas investors though foreign pension, insurance and sovereign wealth funds, and the remainder from domestic institutions. Foreign funds will be raised through a government appointed committee headed by Deepak Parekh, the chairman of Housing Development Finance Corporation and a top government advisor.

“The modalities are being worked out,” Montek Singh Ahluwalia, a top government adviser told the Businessweek in a telephone interview from New Delhi. “The idea is to refinance lending institutions. We are talking to the World Bank and other multilateral agencies.”

The government appointed committee is expected to look at innovative ways to bridge the widening gap in infrastructure financing. According to an Ernst & Young India report, India spent 6.5 percent of its gross domestic product in 2009 on infrastructure, compared with about 11 percent by China. Nonetheless, a recent focus on investments in infrastructure mean India doubled its target for infrastructure spending to US$1 trillion in the five years starting 2012 to narrow the gap with China, the world’s fastest growing major economy. The fund is the latest attempt by the government to raise capital from overseas after a US$5 billion fund planned in 2007 with Citigroup Inc. and Blackstone Group LP was shelved, according to BW.

Meanwhile, some analysts say the money is already in India, its politics and bureaucracy that create an inhospitable environment that get in the way.  Finances from countries like Japan, the US, UK, South Korea and China have been investing into India through the PPP (public-private-partnership) model for a while now, however, state and municipal level confusing policies and entrenched special interests, often act as a brake on development for much needed-projects. – Hopefully, this fund will be different!

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