India’s Prime Minister, Narendra Modi, swept to power in May 2014 and rapidly placed infrastructure investment and development as a main area of focus. Although historically hindered by structural bottlenecks such as the Land Acquisition Act, poor dispute resolution processes and lack of financing avenues, India’s planned National Investment and Infrastructure Fund is a sign of the Government’s resolve to meet India’s $1tn infrastructure investment goal by 2017. To put this into perspective, India would need to spend half of its 2014 GDP to meet this target.
Preqin’s Infrastructure Online service details 309 completed Indian infrastructure deals that have taken since 2004, for an estimated aggregate deal size of $50bn. As the chart above shows, 2009 was the peak year for Indian infrastructure deals; 39 transactions were completed for an estimated aggregate value of $7.4bn. Deal activity has not since returned to this level, despite a government-led drive for increased infrastructure spending that began in 2010. As a result of government efforts, new policies have been implemented, including the creation of tax-free bonds to fund railway and road infrastructure investments, increased PPP tenders and appointments of expert panels to streamline project approvals. While there has not been a significant change in the number of transportation deals post 2010, estimated aggregate deal size has increased from $1.3bn in 2010 to $3.4bn in 2015 so far. In comparison, the estimated aggregate deal size for all sectors (excluding transportation) decreased from $2.3bn to $1.7bn in the same period.
However, a key impediment, especially in the construction of greenfield projects, is the difficulty in land acquisitions; remedying this would require reform to the Land Acquisition Act. Between 2004 and 2015, 31% of deals have been for greenfield projects on average, whereas 52% were deals for secondary stage projects. However, the proportion of deals completed for greenfield assets declined from 37% in 2011 to 19% in 2014, and now stands at just a fifth of Indian deals in 2015 so far. One greenfield deal completed during the tenure of Modi’s administration is the $1.2bn concession signed for Vizhinjam International Deepwater Seaport by Adani Group in August 2015. Another deal involved Sembcorp Industries’ 60% acquisition of Green Infra for $171mn, providing IDFC Private Equity Fund II an opportunity to fully exit its investment in February 2015.