After sharp 37% fall in 2016, investments up 24% in H12017, but India still lags
The sharp fall in private investment in infrastructure in India, Brazil and Turkey had brought down such investments in emerging market developing economies (EMDEs) by 37% in 2016, but in the first half of 2017 these grew 24%, according to a World Bank report. The three EMDEs were the main drivers of private infra investments during 2011-15, with a 58% share; though they still continued to be heavyweights, the momentum slowed in 2016. While a recovery was seen in the first half, India is not part of it. According the Private Participation in Infrastructure (PPI) report of the World Bank, PPI investment in EMDEs stood at $36.7 billion in H12017 compared with $29.5 billion in H12016. But H12017 PPI investment levels were still lower than historical levels.
PPI investment commitments in EMDEs had fallen sharply in 2016. The $71.5 billion committed across 242 projects in 2016 represented a 41% decline compared with the annual average of $121.4 billion over 2011 to 2015. In India’s case, the decline in private investments was largely due to the aggressive bidding by private players in power, highways etc, and liberal lending by banks without duly assessing the projects, precipitating what is now being called a twin balance sheet problem — over-leveraged corporates and banks with huge stressed assets. Though several steps have been taken by the government to remedy then situation, a revival in private investments is yet to materialise.
On Thursday, rating agency Crisil said private share in total infrastructure investment might decline to 28% in the next five years (FY18-FY22). The share was 34% in the previous five years (12th Plan) and 36.5% in the 11th Plan period. “The lower investment relative to the five-year average is largely driven by declining private investment in infrastructure in three key markets, which together accounted for a majority of investment from 2011–2015: Turkey, India, and Brazil,” the World Bank said in the report. Crisil said India might see investments of Rs 50 lakh crore in the next five years to build its infrastructure if the economy grows on an average 7% annually during the period. Since the recent heavy-lifting of infrastructure investment is not sustainable in the long term, Crisil recommended early resolution of the twin balance sheet problem, acceleration and broad-based adoption of technology and institutionalising innovations that afford greater access to capital market financing.