India’s economic growth is intrinsically linked to its infrastructure development, and the government is doing everything possible and more to attract private investment. However, concerns about a weaker NDA alliance, high counterparty risk, and a slow court system remain high on investors’ minds.
On Jun. 4, both BJP supporters and holders of infrastructure shares sat in front of their televisions with a sinking feeling in their stomach. Narendra Modi-led BJP had unexpectedly fallen well short of the absolute majority mark, and consequent sentiments were causing the stock market to have its worst day in four years.
Infrastructure, in particular, fell 10.2 percent compared to an overall 6 percent drop, recording its worst session since Mar. 2020. Infrastructure is so strongly linked to the Modi-led India growth story, that even a reduction in the ruling party’s strength threatened to erode millions in stock value.
Modi’s infrastructure drive over the last ten years has been built on three fundamental objectives: First, India is rapidly urbanising, with over 42 percent of the population expected to live in urban centres by 2030. Infrastructure to support this higher standard of living needs to be built.
Second, economic growth will soon be directly linked to sustainable, affordable energy. Building infrastructure to reduce foreign energy reliance is key. And, third, infrastructure is an enabler of growth. It adds employment, eases business logistical requirements and contributes significantly to the country’s gross domestic product, even in slow growth periods.
Despite subdued private investment, the BJP-led government has increased its capital outlay and expenditure on infrastructure development almost each year to stimulate economic growth. For FY 2025, Finance Minister Nirmala Sitharaman raised capital spending on infrastructure to 11.1 trillion rupees ($134 billion) in the interim budget, up 11 percent from the previous fiscal year, boosting the funds available for the sector for the fourth consecutive year.
The government set up a National Infrastructure Pipeline (NIP) and National Monetization Pipeline to stimulate infrastructure investment. Currently, the NIP has 9743 projects with a capital outlay of $1.3 trillion at various stages of development.
INCREASING FOREIGN INTEREST
Rapidly increasing budgets, regulatory reforms, rising subsidies, high-yielding infra-assets and professionalisation of the business-facing government machinery have combined to deliver a clarion call for global investors to flock to India. The increased focus on connectivity projects and renewable energy is also bringing in domestic and international investments.
In FY 2024, FDI inflows into the infrastructure sector hit $4.2 billion, up from $1.7 billion in the previous fiscal year. This push to be business-friendly is bringing more investors to the subcontinent, rather than any regulatory reforms.
Parveet Singh Gandoak, an M&A and private equity-focused partner at U.S. law firm King & Spalding’s Singapore office, says he’s been increasingly busy with infrastructure and renewables work.
“Infrastructure has become a sweet spot because our clients are looking at it for attractive investment opportunities, and with geopolitics, demographics, and a leadership committed to development, it's India’s time in the sun,” Gandoak says.
Gandoak points to increased certainty in tax regulation and policymaking, better timelines for approvals, streamlining clearances and registrations, lower government intervention in projects and a high-performing stock market as some of the key reasons behind increased global interest in India’s infrastructure market.
“Regulators have become much more market-savvy, and we are seeing the government appointing more industry experts to ensure better governance,” he adds.
Another big impetus is the introduction of infrastructure investment trusts (InvITs), which allow easy access and exits to investors in India’s infrastructure markets.
“InvITs were a game-changer,” says Gandoak. Through these funds, “the government has monetised assets immediately and given them access to public markets. This has given a lot of impetus to some sectors such as roads and has also given an easy exit to investors.”
And the market has taken to them. This year alone, KKR-backed Highways Infrastructure Trust acquired 12 road projects from PNC Infratech in $1.08 billion deal, one of the highest in the roads sector. Another InvIT, Brookfield-backed Data Infrastructure Trust acquired American Tower Corp’s India operations for $2.5 billion in January. National Highways Infra Trust completed a $740 million issuance of its units by way of private placement to domestic and global investors, including the Canada Pension Plan Investment Board, and the Ontario Teachers’ Pension Plan Board.
Further, Bharat Highways InvIT became only the fourth publicly listed InvIT in the country after completing a successful $300 million initial public offering.
But despite reforms, some investors say that may not be as loose-fisted with the purse without a Modi-led government, which has instilled faith that laws and reforms will remain business-friendly and investor-friendly as long as it remains in power.
“Commitment of foreign capital is more connected with growing faith in the Indian economy rather than any reform on the ground,” says Vishwang Desai, managing partner and head of corporate commercial practice at law firm Desai & Diwanji.
As a weaker BJP-led National Democratic Alliance begins a the third term, investors remain concerned about whether the political stability over the last five years, which fostered an investor-friendly business environment, will remain.
INVESTOR CONCERNS
While it is yet to be seen whether the BJP’s aggressive infra-push can continue in its third term, certain long-term concerns need to be addressed to see more private investment in infrastructure.
The largest being counterparty risk. Lawyers from India and abroad unanimously agree that the single biggest risk faced by foreign investors in India arises from their counterparty’s poor corporate governance and fraudulent practices. The consensus seems to be that promoters have very creative ways to ensure they control not only the finances, but also the way money is spent and allocated, and even how the shareholders make money from their investments.
“The amount of disregard Indian promoters show foreign investors is huge,” a lawyer said on conditions of anonymity.
Desai says he advises his clients to always investigate the past history and track record of promoters to identify instances of shoddy governance, miscommunication and misdirection, and denial of shareholder rights.
Gandoak adds that having the right to appoint the chief financial officer, rigorous due diligence, and ensuring control over finances and related-party transactions is also crucial in reducing counterparty risk.
This is key as most investors are not keen on moving courts to enforce contract terms or adjudicate disputes. Lawyers say this is for two reasons. First, the corporate resolution system in India is sub-par, with the National Company Law Tribunal ill-equipped to handle complex corporate issues. The timelines from arbitration to appeals in court is choking, particularly in the construction sector.
Construction disputes in India can take up to five years, which is three years more than the legally mandated period under the Arbitration Act. India has 21 judges for every million people, one of the lowest judge-population ratios in the world.
“If investors start going to court regularly to enforce contract terms against Indian promoters, the marketplace will see them as aggressive investors to be avoided in future deals.”
- Vishwang Desai, Desai & Diwanji
“Foreign investors have no appetite to get stuck in Indian courts,” Gandoak says. He recommends increasing funding for the judiciary and setting up specialised corporate tribunals to handle investor disputes expertly.
Another reason to not go to court is to prevent a perception of being an aggressive investor. “If investors start going to court regularly to enforce contract terms against Indian promoters, the marketplace will see them as aggressive investors to be avoided in future deals,” Desai explains.
Another big concern for foreign investors remains land acquisition. The process to acquire a parcel of land as an investment requires localised experts, knowledge of local language and dense bureaucratic negotiation.
This has been eased, to some extent, explains Desai, by local authorities already acquiring land for any potential future projects. In such cases, a private party can take over the land from the local body on fulfilling the prescribed conditions, and not wait for the government to acquire the land.
But in other cases, like bullet train projects, the path of the track is constantly being manoeuvred to fit evolving situations, and land acquisition is bound to take more time, explains Desai.
Foreign investors are also staying away from public-private partnerships to avoid red tape, says Gandoak. “PPPs from a foreign investor perspective remain quite limited as perceptions regarding corruption and bureaucratic red tape still bother them,” he explains.
