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.
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.
READ MORE ON INDIA & INFRASTRUCTURE:
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.
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.
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.
READ MORE ON INDIA & REFORMS:
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 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.
“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.