American investors were urged to support India’s $1 trillion infrastructure plan at a conference of more than 100 business leaders gathered at the Consulate General of India in New York on Saturday to discuss the emerging nation’s public-private partnerships.
With such a large price tag on its five-year infrastructure plan, India has its work cut out in terms of attracting global funding to upgrade its roads, airports, seaports and power plants by 2017.
In a keynote address, retired U.S. Sen. Larry Pressler, R-S.D., drew parallels between the United States and India, saying the two nations are “messy” democracies facing similar problems as they compete in the global marketplace. Compared with the giant economic engine of China, the United States and India both struggle with issues inherent to democracies, such as land rights and eminent domain, Pressler said, noting that the two countries can help each other with trade agreements and internationalized financial markets.
“It’s hard in both India and the United States to get the right people to run for Congress or Parliament,” Pressler (left) said. “China doesn’t have to worry about getting the right people to run for office. Just a few people make the decisions there.”
Pressler’s speech comes at a time when American investors, worried about the economy at home, are considering a flight to quality overseas in emerging markets. The BRIC countries of Brazil, Russia, India and China are seen as especially appealing opportunities as their economies and middle-class consumer bases grow.
In the current political climate, the U.S. no longer has all the answers, said Pressler, who spent 18 years in the U.S. Senate and four in the House before retiring in 1997.
“I don’t go around preaching about how advanced we are, because things change,” Pressler said. “Look at where Brazil is now. We can learn from other countries.”
A New Twist: India Funds U.S. Infrastructure
In a new twist on the U.S.-India infrastructure story, the weakened U.S. is showing signs that it will rely more on India’s largesse in the future, much as India now relies on the United States. At the Consulate of India on Saturday, the Mumbai-based Essar Group of Companies received special recognition for funding an open pit mining operation in the northern Minnesota town of Nashwauk.
The $1.5 billion project, which is creating hundreds of U.S. jobs, is the biggest industrial project in decades on Minnesota’s Iron Range.
Around 24,000 metric tons of steel arrived on the Iron Range from India last spring, according to a local news report. Financing for the project came from India rather than U.S. banks because the company’s attempts to obtain financing from U.S. banks were shut out as lending tightened in the wake of the Great Recession.
Parallel Problems of Messy Democracies
Pressler listed a number of parallels he saw between India and the U.S. during his extensive travels in India when he served on the board of directors of Infosys Technologies Ltd. in Bangalore. He pointed not only to both countries’ insufficient infrastructure, but also voter apathy, problems with terrorism and security, a lack of universal telecom in rural areas and “legalized corruption”—his term for special interest groups that have a stranglehold on the democratic process.
Gautam Bhandari, managing director of infrastructure at Morgan Stanley who spoke at the conference about public-private partnerships as a source of funding, agreed with Pressler’s “insightful” thoughts about the parallels between the U.S. and India. Noting that “capital tends to go to attractive places,” Bhandari said the Morgan Stanley Infrastructure group, with $4 billion under management, targets investments in eight countries in sectors such as transportation, energy and utilities and communications.
Public-Private Partnerships Are Key
In its plans to attract capital from global investment banks like Morgan Stanley, India is focused on developing more public-private partnerships, said Bajaj Pramod, deputy consul general of the Indian Consulate, in opening remarks at the New York conference.
“Bridging the infrastructure gap is huge and requires private-public partnerships for road building,” he said. Debt of a longer tenure is required, he added, and that will require further liberalization of the economy by India’s finance ministry.
India’s Union Cabinet on Friday approved a five-year plan that is now up for the National Development Council’s final approval by Oct. 15. The emerging nation’s five-year infrastructure financing plan, scheduled to begin next year, would grow gross domestic product to $86 trillion by 2050 from $4 trillion in 2010, according to conference host Aspire International Group.
Diane Farrell, executive vice president of the U.S.-India Business Council, followed Pramod’s remarks with observations about India’s infrastructure gap on a recent trip to Bangalore.
“When I go to India I’m fascinated and frustrated. It’s frustrating just to get from one place to another, but you see so much potential,” Farrell said, pointing out a mismatch between India’s asset liabilities and its ability to extend debt to the life of an infrastructure project, such as 20-year bonds for power plant construction. “If India is trying to attract international investment, it has to do a better job of aligning infrastructure projects with global capital.”
How do you invest in a country when you believe it promises opportunity, but you’re not that familiar with what it has to offer? Read Savita Iyer-Ahrestani’s Growing Choice, Shrinking Globe at AdvisorOne.com.