Jammed up

The credit crunch has imposed new obstacles to investment in infrastructure. Will the government’s stimulus package get things moving? Ben Frumin reports

Late last year, Anuj Puri made his way to Mumbai airport in an old taxi based on a 1960s Fiat. He was visiting Delhi for a weekend business trip.

Describing the two-hour ordeal, Puri says: “By the time you get to the airport, your back’s hurting. You’re done for the journey. Where I’m based in Bombay, it’s absolutely a nightmare the way the roads are, the mass transit system, the airport. It’s very primitive.”

Puri’s uncomfortable, pot-holed drive in Mumbai was, however, strikingly different from the smooth sailing he experienced in India’s capital. There, the taxis are “much better … the roads are beautifully laid out and in 15 minutes you’re in the office in Delhi.

“What a phenomenal change that city has gone through!” Puri exclaims.

Puri is the chairman and country head of Jones Lang LaSalle Meghraj. He oversees a 3,500-person operation spread over eight Indian cities, consulting for the government and developers on a host of infrastructure projects.

A recent report by the India Brand Equity Foundation (IBEF) estimated that for India’s economy to continue its 8% annual growth rate, investment in infrastructure needs to increase from 4.6% of GDP to 7-8% from 2007 to 2012. This means “an outlay of almost US$320 billion,” according to the IBEF, including US$50.8 billion for highways, US$9.3 billion for civil aviation, US$11.5 billion for ports and US$69.4 billion for railways.

“The capital needs of our country for the development of infrastructure projects are very high and investment from domestic investors is not sufficient to fund these projects,” say Diljeet Titus and Mohit Arora of Titus & Co. “The infrastructure sector has been attracting investments from many international investors but the global downturn has led to the withdrawal of US$13 billion from foreign portfolio investment which was supposed to be invested in India in 2008.”

Gautam Khaitan and Arihant Jain of Delhi-based law firm OP Khaitan & Co agree. “Owing to the global financial meltdown, India is feeling the heat, specifically related to infrastructure development,” they say.

Sameer Vyas and Priyanka Singh of Luthra & Luthra add to the gloom, pointing out some rather worrying statistics: “The growth of the key infrastructure industries – crude oil, petroleum refinery products, coal, power, cement and finished steel [between] April and October in 2008, dropped to 3.9% as compared to 6.6% in the same period last year.”

Portfolio of postponements

In some cases, infrastructure financing has ground to a virtual halt. “By and large, we have not seen any activity in the infrastructure finance transaction area for the last two months or so,” says Arun Seebe Raj of ALMT Legal.

Many lawyers and other professionals working on infrastructure projects in India believe the sector, like so many others, will continue to suffer in 2009.

ML Bhakta, a senior partner at Kanga & Co, believes that “2009 may be a very challenging year for Indian businesses.”

Jonathan Cripps, an Eversheds partner who heads the firm’s project and infrastructure finance practice, agrees. “2009 is going to be a year where most jurisdictions – India not being an exception – are going to spend a lot of time preparing deals, but probably not closing them until the very end of the year. And that’s just a fact of life. That’s nothing to do with the state of the projects or any comment on India.”