Ten years ago, the chances were that any foreign investor in India would have been connected to the IT, telecommunications or business process outsourcing industries. Since then foreign investors have broadened their horizons, with sectors such as retail, healthcare, education, real estate and infrastructure attracting the attention of investors from all over the world. But will this enthusiasm for all things Indian last, or will issues such as corruption, multi-layered bureaucracy, a lack of skilled workers and difficulties when it comes to land acquisition dampen investors' ardour?

Investment in the roads and highways sector has recently attracted several international engineering, procurement and construction (EPC) contractors, among them Toyo Engineering, Jacobs H&G, Unde, Tecnimont and Aker. There have also been recent investments from US bank Morgan Stanley and Montreal-based SNC-Lavalin Group, as well as private equity fund Actis.


Arvind Mahajan, executive director at KPMG, says: “We have many foreign companies as our clients and roads are a typical long-term investment for them. These companies are here for a long stay. Companies from Portugal, Thailand, Japan, the UK and others see great potential in India's roads and highways.”

A long-term investment

For a private equity firm such as Actis, an investment in India's roads and highways project is seen as a long-term investment with returns of about 17% to 18% over the next 10 years. Actis has made two deals in the country so far, one with GVK Energy and the other in a Tata company.

Sanjiv Aggarwal, a partner of Actis's infrastructure business, says: “Unlike investments in technology, where risks are very high, in the infrastructure sector the advantage is that there are real assets. There is a lot of enthusiasm among the foreign funds to invest in the roads and highways sector, since India is capital short and the demand for infrastructure is very high. [The time] is just right for funds to invest.” 

Most critics are optimistic that the Indian government's ambitious target of a building 20 kilometres of road every day – backed with a budget of $92bn – will meet its aim of providing new expressways and highways crisscrossing the length of the country.

Lalit Jalan, CEO at Indian power utility Reliance Infrastructure, says: “The Indian government has recently allowed foreign institutional investors to invest an additional $5bn in bonds issued by companies engaged in the infrastructure sector. So, we can confidently make the observation that India is still an attractive destination for foreign investment and that the roads sector will grow in the near future.”

Karunakaran Ramchand, chief executive at infrastructure finance and development company IL&FS, adds: “We have a framework in place for many of the infrastructure sectors, wherein model concession agreements have been formulated which are acceptable to the lenders, the developers, the government and shareholders. What is required is a transparent and stable policy which would allow the private developers to work with a long-term vision. A decade of unhindered growth, supported by a conducive environment, could enhance infrastructure in India to much better levels.”

Happy customers

The satisfaction and high gains for foreign investors from India can be gauged from a recent survey conducted by industry body FICCI. The report revealed that 62% of investors have reported profits in their Indian operations and nearly 70% have been successful in meeting their profitability targets. The spread of these profit-making firms has been broad-based and not restricted to just a few sectors.

In its ‘Infrastructure in India’ report, consultancy firm PricewaterhouseCoopers noted: “Foreign companies who do not acknowledge the opportunities [in India] in good times may miss out on a critical opportunity to establish a long-term presence in one of the worlds’ largest growth markets.”