Related News

Baltimore bridge collapse unlikely to disrupt global trade

Q&A: South Africa’s infrastructure minister eyes UK and European investment

Acre Capital secures EIB funding, readies Africa fund launch

Nokia banks call on Finnish ECA for India telco deal

Fewer overdue payments but longer delays for Asia’s corporates as credit terms tighten

The Indian government is to seek international finance for its plans to turn Mumbai into a global trade and financial services hub

Narendra Modi’s administration’s ambitious rhetoric on trade continued this week, when the chief minister for the Maharashtra region announced the fast-tracking of major infrastructure projects in Mumbai. Already, Fadnavis has approved 25 large projects in just two months, including the development of a new smart city in Kalyan and a logistical hub in the northeast of the area.

Devendra Fadnavis also outlined plans to turn Mumbai – the country’s largest metropolitan area – into a global hub for trade and financial services. The government plans massive infrastructure investment and will shortly be attracting bids for the Mumbai Trans Harbour Link and a coastal road project connecting disparate parts of the city, with the overarching aim of making the area a prime destination for foreign direct investment.

Speaking at a seminar in Mumbai, his finance minister Arun Jaitley talked up plans to attract international finance for the projects, saying: “All models of financing have to be explored. The country cannot solely rely on foreign investment, it needs to increase public spending, in the first stage, while also converting domestic savings into infrastructural financing.”

Multinational companies have been circling India since Modi’s election last year, in the hope that he will remove some of the cumbersome barriers to trading and investing in one of the world’s 10th largest economy.

British firms, in particular, have been increasing their Indian presence, with the UK India Business Council Chair Patricia Hewitt telling GTR that the UK’s colonial legacy has helped it gain a head start over rivals in the Indian market.

“Clearly the UK has a long, historic relationship with India. There are companies – Standard Chartered, Unilever – that go back such a long way, they are as Indian as they are British. But if you look at the past 15 or five years, you’ll see the UK is the largest provider of FDI into India.

“We’re critically important as an investor in India. Our companies are already there. We’re a big and attractive market for India in its own right, but also a naturally jumping off point for Indian companies looking to enter the European market.”

Asked whether British companies will receive concessionary financing for projects in India, Hewitt responded: “I don’t know, but I think we’ll see the government of India very willing to offer guarantees in order to facilitate PPPs, particularly in the roads programme. Clearly the interest rates in India are a real challenge to investors. They make it a real challenge to obtain a decent return on investment. On the face of it it’s much more attractive for investors in India to raise their finance in the City of London.”

The past week has also seen the development of two large transactions. The Export-Import Bank of India launched a 5.5 year bond worth US$500m, which attracted some 150 investors. Furthermore, Oil India, the state-owned energy company, secured a US$125m loan from Mizuho and Mega Commercial Bank.

The funding comes in the midst of a Reserve Bank of India (RBI) initiative to encourage more bank lending, a campaign which has raised some concerns.

The RBI, along with cutting repo rates and the minimum share of deposits banks are required to hold in local government bonds, changed the rules around loan restructuring, ostensibly to allow borrowers to refinance projects that have stalled due to lack of financing.

Some analysts, however, are speculating that this could add further non-performing loans to a country in which bad lending is endemic.

“These moves to encourage lending have led to some suggestions that the local banking sector is at risk of crisis. Much of the concern stems from the level of bad loans that are already in the banking system. Indeed, non-performing loans (NPLs) account for 4% of total loans, while restructured loans (loans that have had their payment terms altered to prevent default) account for a further 9%,” wrote Shilan Shah of Capital Economics in a note.

While these are not particularly high compared to other emerging markets, the fact that they have almost doubled since 2011 is some cause for worry, Shah said.