India lays out the red carpet for SWF, pension fund investments in infrastructure

ANALYSIS
India lays out the red carpet for SWF, pension fund investments in infrastructure
Indian Prime Minister Narendra Modi inaugurates and lays the foundation stone of multiple infrastructure projects in Tripura, through video conferencing. Newly appointed relationship managers will network with investors to coordinate with the relevant ministries and fast track their entry into the country.Courtesy: ANI

The Modi government has set an ambitious target of investing $1.4 trillion on upgrading India’s infrastructure. To get around the resource crunch, it is going out of its way to woo large global funds who look for stable, rather than high, returns.

India continues to roll out the red carpet for the world’s largest sovereign wealth funds (SWFs) and pension funds. After announcing tax exemptions for certain categories of investments, the Finance Ministry has now decided to designate relationship managers (RMs) for each such fund.

The RMs will help these deep pocketed investors coordinate with the relevant ministries, fast track their entry into the country and ease their pathways to investment in the Indian infrastructure sector.

Relationship managers for foreign investors

The government has already begun the task of allocating relationship managers to the dozens of SWFs and pension funds that are eager to invest in India. These include funds like the Abu Dhabi SWF, the Saudi Arabian SWF, Singapore’s GIC and Temasek, the Norway SWF as well as other funds like Japan Post, CalPERS, Caisse de Dépôt et Placement du Québec, and British Columbia Investment, among others.

The relationship managers will help these investors coordinate with the relevant ministries, fast track their entry into the country and ease their pathways to investment.

The Indian government has set an ambitious target of investing $1.4 trillion on building fresh infrastructure and upgrading its existing roads, rail, ports, airports and electricity sectors. It, therefore, needs to attract long-term investors who look for stable rather than high returns unperturbed by short-term issues that can crop up in any such infrastructure building initiative.

Prime Minister Narendra Modi with Crown Prince of Saudi Arabia, Mohammed bin Salman Al Saud. The Arab state has launched a massive investment drive and India will be engaging with the Saudi Arabian SWF to look at prospective opportunities in India.
Prime Minister Narendra Modi with Crown Prince of Saudi Arabia, Mohammed bin Salman Al Saud. The Arab state has launched a massive investment drive and India will be engaging with the Saudi Arabian SWF to look at prospective opportunities in India.Courtesy: ANI

Modi sets the tone for investment-friendly measures

This initiative follows the meeting Indian Prime Minister Narendra Modi had on November 5 last year with the heads of major global investors, including SWFs and pension funds, from the US, Europe, Canada, South Korea, Japan, Middle East, Australia and Singapore. Some of the marquee participants included Singapore’s GIC and Temasek Holdings, Qatar Investment Authority, International Development Finance Corporation, PensionDanmark, Japan Post Bank and Korea Investment Corporation.

Briefing the media, a senior official in the Ministry of Finance had said these investors had total assets under management of $6 trillion. For some of these investors, this roundtable meeting was their first engagement with India.

The roundtable was followed by one-on-one meetings between the Prime Minister and these foreign investors. The decision to appoint RMs for each of these investors was one of the suggestions that emerged from these meetings and replicates a practice that is widely prevalent in the commercial banking and wealth management business.

Other steps to attract SWFs, pension funds

Then, the government has taken several other steps to attract these deep pocketed investors to the Indian infrastructure sector. The Finance Act 2020 (i.e., in last year’s Budget) had provisions for exempting from tax some specified incomes earned by SWFs and pension funds on specific infrastructure projects subject to some conditions.

This initiative follows the meeting Modi had last year with the heads of major SWFs and pension funds from the US, Europe, Canada, Korea, Japan, Middle East, Australia and Singapore.

But the conditions attached proved to be too onerous. Result: Only one SWF could benefit from this provision, largely defeating its purpose. Taking note of this, the Finance Bill 2021 (this year’s Budget) inserted the necessary provisions to ensure that it could be applied to all the intended beneficiaries.

The BlackRock  office in New York City. The government of India wants to attract SWFs and pension funds and ensure that it eliminates risk from the investor’s portfolio as fas as possible by selling roads, highways, airports, ports etc.
The BlackRock office in New York City. The government of India wants to attract SWFs and pension funds and ensure that it eliminates risk from the investor’s portfolio as fas as possible by selling roads, highways, airports, ports etc.Courtesy: Reuters

Resource gap

The government needs to attract SWFs and pension funds as it does not have adequate budgetary resources to invest in the country’s infrastructure. To make the investment proposals more attractive to them, the government is now offering them completed projects that can give returns in the form of annuities.

The idea is to eliminate execution risk from the investors’ portfolio as far as possible, sell roads, highways, airports, ports, etc., as income-generating assets at a premium and raise funds for the next round of greenfield and brownfield investments.

The idea is to eliminate execution risk from the investors’ portfolio, sell income-generating assets at a premium and raise funds for the next round of greenfield investments.

Improving the ease of entry

“Many of these funds are still unfamiliar with government procedures in India. They will, therefore, need some handholding through the transaction especially when multiple ministries, state governments and statutory agencies may be involved,” said a senior government official, adding that the government is likely to come out with other measures as well to improve the experience of investing in India for these SWFs and pension funds.

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