Business Today

Bridging the Gulf

The $75-billion UAE-India fund could be the answer to India's infrastructure funding gap.
Joe C. Mathew        Print Edition: September 13, 2015
Prime Minister Narendra Modi (R) with Mohamed Bin Zayed AI Nahyan, Crown Prince of the UAE
Prime Minister Narendra Modi (R) with Mohamed Bin Zayed AI Nahyan, Crown Prince of the UAE

As far as commitments to invest in India go, Prime Minister Narendra Modi appears to have persuaded each of the wealthier nations he has visited to promise investment of billions of dollars into India.

In the past year, the US has committed $41 billion, Japan has laid out a $35-billion plan, China $20 billion, and now the biggest of all, $75 billion, has been promised by the United Arab Emirates (UAE) as its investment target for India. While all these countries have strong reasons to participate in India's growth story, thereby justifying their investment commitments, in reality only a fraction of the total commitment ever makes it to the country. Except in the case of Japan, which spotted the India opportunity three decades ago, well ahead of any other country. Now, the UAE may also turn out to be a pleasant surprise, especially since the US and China still have to deal with their own economic woes.

That is because unlike many investment commitments announced during high-profile visits of country heads, the UAE commitment is not linked to the investment proposals of individual companies based out of those countries. Nor does it seem to be completely tied to any projects that need to be awarded to some specific entities. It looks very much like a pure investment plan.

The UAE is among the few nations sitting on a cash pile, eager to invest in long-gestation projects in key countries

The $75-billion UAE-India Infrastructure Investment Fund can be the ideal vehicle for the cash-rich Arab country to co-invest in India's National Investment and Infrastructure Fund (NIIF). The rationale behind the launch of the NIIF with a Rs 20,000 crore corpus as equity was to allow generation of three to four times that equity from outside, including the likes of UAE-India Infrastructure Fund to support new infrastructure projects and finance stalled ones. Direct equity flows from the UAE have, otherwise, been minimal. During the last 15 years only $3 billion, accounting for just 1.21 per cent of India's total foreign equity inflows came from that country.

The UAE-India fund targets investments in India's next-generation infrastructure which includes smart cities, industrial corridors and high-speed rail networks - a perfect fit as far as the Modi government's infrastructure development plans go. Also, the UAE, and perhaps Japan to a certain extent, is among the few countries sitting on a cash pile, eager to invest in long-gestation projects in key countries.

With bilateral trade amounting to $361 billion, the UAE was the third-largest trade partner of India in 2014/15. China and the US, with $443 billion and $393 billion worth of bilateral trade, respectively, in 2014/15, were India's top two trading partners.

Improvement in India's infrastructure - railways, ports, roads, airports and industrial corridors and parks - can only enhance India's trade with all three nations. But not many can afford to loosen their purse strings as the UAE is apparently trying to do.

@joecmathew

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