Investment: A legacy of perception?

An India-US Infrastructure Fund that was set up in 2010, but with the US recently lodging a formal complaint against India with World Trade Council on entry barriers to companies, things could be on wait-and-watch mode. Ashish Wig says the caution is traditional but US companies must start looking for opportunities in the new environment.

In the newly reformed environment, the Chinese, South Koreans and Malaysians are already investing in these sectors. In the real estate sector, FDI has been allowed in the township building and further relaxations are in the offing. Recent reports indicate that overseas investors have invested close to $2 billion in the past one year, despite hard economic conditions. Considering the size, potentials, and complementarities that both democracies have, we should have seen a much greater presence of the US companies in the infrastructure development of India. There is a need to introspect why the US is shying away from investing in India’s infrastructure sector. This could be a legacy of perception.

In the early 1990s, when the reform process was in its infancy, two large American corporations, Enron and Cogentrix, had focused on India’s power sector. Both the projects ran into rough weather and had to be withdrawn subsequently. These experiences would have affected the US investor sentiments. But that was some two decades back when India was grappling with the initial problems of opening up. Since then, there has been a paradigm shift in the investment policy of India.

Issues like delays in land acquisition, mandatory environmental and other government clearances, problem of fuel linkages, high tariff structures, red-tapism, and so on, have been making the projects unattractive. Add to this the fact, that over the past couple of years, several infrastructure projects worth several billion dollars have been stuck up for want of some clearance or the other.

The problem is so bad that the Government of India has now set up a Cabinet Commission on Investment (CCI). In first week of July 2013, CCI has already cleared projects worth Rs.65,000 crore. This has sent very positive signal to the stakeholders and we hope to see a much more robust participation in the next several months.

Course correction: US corporations had earlier pointed out some of the bottlenecks in the power sector: sick public sector units (PSU) utilities, lack of unbundling of power (generation, transmission and distribution with one entry), power theft and pilferages etc. These have been largely addressed. Against this backdrop, the US investment should have picked up at least a few years ago, had we not faced a global economic slowdown. The US economy was among the worst affected. Thankfully, there has a positive change in the profile of the US economy.

It is therefore possible that in the next year or so, there will be a perceptible change in infra¡structure investments by the US.

The opportunities: There could be a greater visibility of US companies in the railway sector, especially in the Dedicated Freight Corridors and the Delhi-Mumbai Industrial Corridor. Wagon manufacturing and leasing could be a very important segment which the US industry should consider seriously. An MoU has been signed between the US Port of Baltimore and India’s Mundra Port, but much more can be done.

India is one among the join the elite group of countries that have successfully handled over 1 billion tonne of cargo in a year. The US-India Infrastructure Fund, started in 2010 with Tata and Honeywell taking the lead, was a confidence-building exercise for tier 2 economic diplomacy, and was symptomatic of the commitment to build the bridges. The Fund can only fructify and utilisation can only take place once the projects move on the ground which, as mentioned before, may see the light of day in the near future.