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March 31, 2005

"Patient investors can win big in India"

"India is an acquired taste. India is about long-term perspectives. India is about patience. But India is a place where you can make a lot of money". So says Rajiv Lall, newly appointed CEO of Infrastructure Development Finance Co. (and formerly with private-equity firm Warburg Pincus in New York) in a Reuters article comparing India (of the "potholed roads and decrepit airports") and China (of the "first-world superhighways and magnetic levitation rail lines").

More extracts from this interesting article:
JM Morgan Stanley estimates that China spent $325 billion on infrastructure in 2003, while India spent just $35 billion. Only in a few nations does the private sector play a big role in infrastructure development, JM Morgan Stanley economist Chetan Ahya says. He urges the government to spend an extra $20-$25 billion a year at least, to be financed by privatisation.

The China comparison makes Indian officials grumpy. They say India can be proud of its recent growth of 6-7 per cent a year given that its gross investment is only about 26 per cent of GDP. China, by contrast, invested some 44 per cent of GDP last year for 9.5 per cent growth. What's more, they add, many of China's infrastructure loans will turn sour, burdening its banks.

"We're going about improving infrastructure with a fairly conservative fiscal model. We're not breaking any banking rules. We're not suggesting anyone take undue risks," said Pradeep Deb, joint secretary at the Finance Ministry in New Delhi. "I think we are looking at a more sustainable long-term model of development by letting the institutions and the markets grow in a natural way," he said.

Tony Nash (former head of VC Research at Red Herring and The Industry Standard) and Paul Waide (Editor of Shanghai, China-based research firm Pacific Epoch) and I are having a discussion on foreign investments in India vis-a-vis China at the Pacific Epoch blog here. Feel free to weigh in with your takes.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.