Investment in the sector equalled 6% of GDP last year, compared with 8.5% in China
"There are thousands of challenges, challenges in project implementation, funding them, getting the clearances. These have always been there," said Archana Hingorani, chief executive of private equity firm IL&FS Investment Managers, which along with Standard Chartered runs the $600 million (Rs2,910 crore) Standard Chartered ILFS Asia Infrastructure Growth Fund. "If one thinks just because the government is better these will go away, I don't think so. Having said that, is that a major deterrent? Certainly not. Opportunities continue."
The demand for infrastructure investment is obvious in India. With an economy that grew at least 9% annually in the three years through March 2008, India is choking on overcrowded roads and railway lines, with businesses large and small forced to self-generate power in order to ensure supply.
Difficulties with land acquisition, long-term financing, red tape and a dearth of attractive projects have curbed development of infrastructure in the world's second most populous country
While stock prices of Indian companies poised to capitalize on a wave of infrastructure investment have rallied, valuations of companies and individual projects remain lower than during the rally that peaked in early 2008.
For example, Larsen and Toubro Ltd, one of the country's top infrastructure-linked companies, now trades at about 29 times trailing earnings compared with the 52-week high of 37 times.
"There is no doubt that one of the key themes for India for years to come will be infrastructure spending," said Binay Chandgothia, chief investment officer at Principal Asset Management in Hong Kong, adding that appropriate valuations will depend on government policies and incentives for foreign capital.
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