In addition to large-scale infrastructure investment, the initiative will also address India’s energy security issues, where factors such as a shortage of domestic coal continue to highlight the need for significant reform and investment.
The government announced that investment will commence in the fiscal year beginning in April with the funds provided by 17 state-owned companies, which include Oil and Natural Gas Corporation, Coal India and the National Mineral Development Corporation. It is hoped that this will kick-start a new round of investment in India’s private sector.
In our view, the recent announcement underlines just how important infrastructure investment is for the development of the Indian economy, and beneficiaries of the infrastructure build-out remain a key long-term thematic for us.
We believe that there is need for a serious level of investment in infrastructure as an ever increasing number of young Indians moving to the fast-growing cities of Mumbai, Delhi and Bangalore.
Longer term, the Indian government has stated that it plans to double infrastructure spending to $1trn as part of its 12th five-year plan and this latest announcement is evidence that it is progressing along this path. In our view, this backdrop lends strong support to the outlook for corporate profitability and order momentum across a range of infrastructure-related sectors.
From a macroeconomic perspective, we believe that rising infrastructure spending should also help propel India’s growth towards double digit levels.
The World Bank expects the Indian economy to expand by 6.5% in the 2012 fiscal year. While this may be slightly lower than recent years, it is more than double the global growth rate and highlights the superior growth prospects of Asia’s second largest economy and the long-term investment potential to be found in the Indian equity market.
