The bullet train deal with Japan shows how
The high-speed rail project between Mumbai and Ahmedabad has lessons for other infrastructure. The project gets 80% of its funding as a 50-year loan from the Japanese, at a rate of interest of 0.1%. The world is awash in liquidity, pushing interest rates down. Developed country governments are eager to help their corporate champions find markets for their products and services. The British government has dispensed with the pretence that aid is about altruism and linked overseas assistance to British economic interests. Turbines for power plants, radars for airports, heavy machinery for mining and road building, expertise in town planning and sustainable construction, mass urban transport systems, anything and everything is available for the asking, provided India can come up with a credible project that will generate an assured return. That is entirely doable.
In 2016, Indian companies and markets have a chance to pull themselves up by the bootstraps, without relying on the benevolence of the global economy. But to do that, they will need support from policymakers in New Delhi and in states. Between January and December 2015, depending on what exchange rates you assume, foreign institutional investors (FIIs) made a net purchase of $1.6-2 billion -the lowest ever in the last four years and less than a fifth of the annual average for the period. Global investors are spooked by a slowdown in all emerging markets, especially China. Another big reason is the sudden drop in wealth with oil exporting nations -which run the world's largest sovereign wealth funds -as crude has crashed from $100 to $30 per barrel. Domestic funds have struggled to fill the gap.
Liquidity will return if India sets its house in order. Companies are debt-ridden and struggling because the domestic reform environment is weak. There is much that can and must be done. To start with, a new bankruptcy code will help clean up many corporate balance sheets. But projects have to become viable, especially in the infrastructure sector.