India and the UK will likely sign an agreement in early February to spurt flow of London-based patient capital funds the burgeoning infrastructure sector of the world’s fifth largest economy. India is aiming for $5-10 billion inflows in the initial phase to establish a proof of concept in project financing for investors to replicate.
Major infrastructure sectors identified by the government for receiving funding under the UK-India Infrastructure Financing Bridge include renewable energy, large national highway projects and railway projects. “Investment arrangements for a few projects will give a template to replicate under the proof of concept,” an official said.
According to an estimate India requires nearly $2 trillion in infrastructure investment by 2030. The Centre was prioritising pacts with global financial hubs, starting with London, as government funding of infrastructure projects was not sustainable for long.
An initial pact on the Financing Bridge was signed between the City of London Corporation and the Niti Aayog on September 11 last year to tap a portion of trillions of dollars managed by asset managers in the City of London into Indian projects.
The bridge mechanism will clarify and address emerging issues related to investments for their faster resolution. Accordingly, the government make sure projects are investible and bankable. “We have to satisfy investors about the security of their investments,” the official added.
Even though London is the world’s second-largest financial services centre with trillions of dollars in investible funds, the majority of asset managers there don’t invest in India due to information gaps in Indian infrastructure projects.
In September 2023, UK Chancellor of the Exchequer Jeremy Hunt said “we are looking at changes to the way our pension and insurance funds are regulated because there is a strong desire on their part to invest more in productive assets and we have a huge pool of capital that is ready to be harnessed.”
The world is not short of resources as almost $350 trillion is available in the world for investments including $150 trillion with pension funds and institutional investors. With the current savings not enough to sustain a high investment rate and economic growth rate in the long run, India needs accelerated foreign investment to fill the void.
So far efforts by India to lure foreign long-term capital through initiatives like the National Investment and Infrastructure Fund Limited (NIIFL) have not met with much success. Since it was launched six years ago, NIIFL has been managing just around $5 billion in assets. The capital formation in India in recent years is led by the public sector, mainly the central government, state governments and state-run enterprises.