Is investment interest in infra waning?

Thu, 16 Jun Pre-Open

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Investments in infrastructure plays a vital role in economic growth of the country. The financial crisis of 2008 bought renewed interest in Public private partnership (PPP) in both developed and developing countries. This was primarily due to stress on the fiscal front and constraints faced by the governments while accessing public resources. This bought to the forefront the need for private participation in infrastructure (PPI). According to a report published by the world bank, the private participation in infrastructure in 2015 globally, remained flat when compared to investments in 2014 at US$111 billion. However, this is lower than the five-year average of US$124 billion. Renewables attracted two thirds of the total energy investments through private participation.

India recorded a ten-year low in its private participation in infrastructure investments in 2015. The primary reason for the continued decline are delays in financial closures of projects. India has only six road projects, which are usually a rich source of PPI, which have seen financial closures in the past ten years. The government has realized the inability of the private sector to bring in investment and so increased its focus to drive investments in the infrastructure segment. The government has tried to address issues faced by the private developers to promote investments.

In terms of the number of projects in 2015, the entire South Asian region saw a total of 43 projects. India was once again a major beneficiary with a total of 36 projects initiated. The majority of the projects in India were renewable energy projects. Notably 26 of the 36 projects, amounting to US$2.0 billion, targeted renewable energy.

Despite the slowdown in the investments, India ranked second in attracting private capital in infrastructure at US$341 billion over a period of 1990-2015. Only Brazil recorded a higher investment of US$510 billion during the same period. The total combined investments combined by the top three heavyweights India, China and Brazil made up only ten percent of the global total in 2015. This is poor when compared to their combined contribution of 54% in 2014.

The data from the report suggests a slowdown in the infrastructure sector. Analysts however believe that the investments in building roads in the highway space have picked up and this has not reflected in the World Bank report as the new projects being awarded mostly belong to the engineering, procurement and construction business (EPC) category and are funded by the government.

The past few years has seen the private sector deleveraging its balance sheet, this has provided them with wherewithal to look for investing in profitable projects which they weren't able to do earlier. The government has realized the importance in revival of private investments in infrastructure segment to boost growth. With the government keen on addressing bottlenecks, we might just be able to stem the decline in investments.

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