India once again heads to the culmination of a 5 Year plan. That too with an unspeakable execution track record. India's first 5 Year Plan (1951-56) had planned investments to the tune of US$ 24 bn (as per then exchange rates). The targeted annual GDP growth rate was 2.1%. The rate achieved was 3.6%. Five decades later the investments in the infrastructure space alone for the 11th 5 Year Plan was pegged at US$ 500 bn. This time the GDP growth was targeted at 10%+. Sadly, the magic of 5 did not work this time around. Whether it is power projects or roadways or cold storages, the completion of the project will just be over 50% by the end of the plan period.
Now, paucity of long term capital is just one of the reasons for the poor track record. Others like land acquisition, environmental policies, raw material scarcity and poor management have also had significant roles to play. India's conservative stance with regard to FDI (foreign direct investment) in specific sectors further added to the hurdles. The government subsequently realized the importance of private sector participation and emphasized on the same. Infrastructure companies have also been encouraged to raise funds from retail investors. But given the need of funds for resolving India's infrastructure bottlenecks the economy needs to look beyond domestic investors.
The government recently initiated policies favouring investments by sovereign wealth funds (SWFs) in Indian companies. These are nothing but government owned pension funds. And if successful, this could be a huge win-win situation for the economy and for the funds.
China for instance has been ruing over the poor quality of its investments in the US Treasuries. A loss of the ‘AAA' status would obviously make the treasury papers a lot less attractive to China. And the least that the country would want to do is risk its money in unsafe territories. For the record, as per Reuters, China already has US$ 122 bn worth of poor quality non-bond investments in the US, Europe and Middle East. And it is only recently that it has started looking at the India opportunity more seriously.
We are not sure if the Chinese would want to take bigger bets on its investments in India. However, the same certainly holds potential to ensure that India too takes some learning on execution from its oriental neighbour.