On the night of 3 February, Prime Minister Narendra Modi hosted a dinner for a group of fund managers and financial institutions who together possess and manage trillions of dollars in assets worldwide. These big players included leviathans such as Abu Dhabi Investment Authority (which manages $770 billion in assets globally), Saudi Arabian Monetary Agency ($755 billion), Hong Kong Monetary Authority ($400 billion), Canadian Pension Plan Investment Board ($205 billion),Singapore’s Temasek ($175 billion) and Australia’s Future Fund ($95 billion). As the hot shots warmed up to India’s rulers on that chilly evening over piping hot vegetarian dishes—Modi’s ministerial colleagues Arun Jaitley, Nitin Gadkari, Suresh Prabhu and Dharmendra Pradhan were present on the occasion—the Prime Minister assured them that he would usher in policies that would drive growth and that he would ensure that a fair and consistent tax system was put in place.

Besides other representatives of Sovereign Wealth Funds (SWFs)—such as GIC of Singapore and California State Teachers’ Retirement System—which are state-owned investment funds, and financial institutions, those of insurers like Hong Kong-based AIA Group and Zurich- headquartered Ace Ltd also attended the dinner at the 7 Race Course Road residence of the Indian premier. Will Hetherton, spokesperson for the Australian government’s Future Fund tells Open, “The Future Fund was honoured to participate in discussions on investment opportunities in India. As a global investor, we were delighted to contribute to the discussion, to learn more about the investment opportunities in India and the work underway to further build an environment that supports investment.” He adds without disclosing specific details of the Fund’s plans in India: “We very much look forward to exploring specific opportunities in India.”

For its part, the Centre has already announced the setting up of a National Investment and Infrastructure Fund (NIIF) with an initial corpus of Rs 20,000 crore, which can be leveraged to draw ten times as much money for projects in this vital sector. Without doubt, infrastructure creation is central to the NDA’s agenda of enhancing economic growth. In his latest Union Budget, Finance Minister Jaitley raised outlays on roads and the gross budgetary support to the Railways by Rs 14,031 crore and Rs 10,050 crore, respectively, over last year’s figures. Now, to raise extra funds, the Government is ready to go all out, and the dinner at the Prime Minister’s residence was just the beginning of a large fund- raising programme on the anvil.

“Such meetings are not really unprecedented, but the optimism this time around was much higher,” says a representative of an SWF who doesn’t want to be named because he isn’t authorised to speak to the media. Another attendee from the Indian side reports that the global investors present there were extremely excited with the Prime Minister’s “pronouncements”. He says, “It helped that he has a majority in Parliament and one of the senior executives of an insurance firm told me that ‘Modi seemed to be in a hurry and we love it’. It is time we say goodbye to slowness.” Pravin Krishna, Chung Ju Yung Distinguished Professor of International Economics and Business at Johns Hopkins University, praises Modi’s statements on taxation. “Hopefully, this can put the fears of retrospective tax changes to rest,” he says.

Faced with criticism within and outside that his reformist moves aren’t quick enough thanks to a series of factors, Modi, three government officials close to the matter say, wants to forge ahead with his plans to attract huge investments in the infrastructure sector. “It is a multi-pronged strategy. The BJP Government wants to do as much as possible to showcase its achievements so as to attract more investment over the next one year,” notes Dharmendra Pradhan, petroleum minister, who, however, refuses to comment on the nature of negotiations at the dinner meeting of early February.

Modi had invited select representatives who were in the country then to attend the India Investor Summit organised by BlackRock, an asset management firm. The Prime Minister, it is learnt, also exhorted fund managers to invest in India to build affordable homes, besides railways, roads and other infrastructural projects. In fact, Norway’s SWF, the world’s largest, too had expressed an intention to increase its holdings significantly in India. Late last year, the fund had said that it had raised its holdings of Indian bonds and stocks to 0.9 per cent of its fixed-income and equities portfolios as part of a broader plan to increase its presence in emerging markets and generate bigger returns. “India is one of those markets where you should expect that we will continue to increase our investments over time, significantly,” Yngve Slyngstad, CEO of the Oslo-based fund, had said in an interview to Bloomberg. “The changes that we have seen have given us more confidence that we will have good investment potential in the coming years,” Slyngstad had said. The Norwegian sovereign fund is now worth the same as the combined market cap of oil giants such as ExxonMobil, Shell and Chevron.

WHAT THE BJP leadership described as a ‘multi-pronged’ approach has got to do not just with the economy, but also politics, notes a senior bureaucrat who is perceived to be a favourite of Modi. “There is a lot of political interest there. Modiji wants the economy to be far more robust and gain in momentum ahead of the next assembly polls, especially the one in Bihar which is due towards the end of the year,” he says.

Prime Minister Modi is well aware of the damage that the rural economy may incur over the next few months and he wants to do his best to offset any distress to rural folk thanks to huge investments that will spur short-term as well as long- term growth, explains an economist who works closely with Modi.

“Rural distress is staring us in our faces. The current rabi crop season has been marked by a shortage of urea and financial irregularities and black marketing as usual. The Centre has not been able to intervene as well as it could have. Modiji is aware of it, but he wants to appeal to the aspiring next-generation among farming communities by bringing in a lot of development and in raising the bar of goodwill towards his dispensation,” adds this economist. Asked if focusing on the agricultural sector is not a priority of the Government, he says, “Infrastructure development will make farming more incentive-based and entrepreneurial. We don’t want our farmers to remain in abject poverty all their lives.” He does not elaborate.

Another BJP leader says that it is to fast- track reforms and to create conditions that will attract global investors that the NDA Government is striving for. Railway Minister Suresh Prabhu, in an earlier interaction with Open, had said that BJP leaders themselves had been over-expecting new railway lines and new trains. “What they don’t realise is that there is no money. Our effort is to bring in more money so that their dreams of last-mile connectivity come true,” he had said. The Indian Railways, which chalks up losses of roughly Rs 26,000 crore every year thanks to its low passenger fares (easily the lowest in the world), has so far been able to raise only a paltry Rs 13,000 crore for new projects that include a doubling of existing lines capacity, laying new tracks and so on. The system charges steep freight charges (among the highest in the world) to cross-subsidise second- class passenger fares and suburban train services. The policy, however, has hurt the Railways: from a market share of more than 60 per cent of goods movement in the late 1980s, the Railways’ share has fallen to almost half that figure as roadway transporters have taken freight traffic away, garnering 60 per cent of the goods market compared with 34 per cent in the late 80s. Which is why the Railway Minister, desperate for investment from all possible quarters for the sector’s rapid development, used his budget speech of 26 February to talk about the need for lawmakers to contribute some of their MPLADS funds to improve passenger amenities. The cash-strapped behemoth, which ferries 23 million passengers daily, is in dire need of funds to set up infrastructure to boost the network’s capacity and quality of services. Prabhu won praise from various commentators for the direction of his budget speech. In a department where ministers were politicians first and ministers second, ignoring systemic needs and instead doling out lollies in their constituencies and home states, his speech was seen as a big departure from the past.

The LIC Initiative

It’s not just global investors such as Future Fund and Norway’s SWF that are cheerful. Big Indian investors, too, are in a buoyant mood over India’s infrastructure spending. For instance, Life Insurance Corporation of India (LIC), India’s largest insurance company with an estimated asset value of Rs 15 lakh crore, is looking at pledging Rs 15,000 crore for the Railways over the next few years, says a senior official. Over a staggered period, as and when the Railways can ‘absorb’ more money, LIC is expected to pitch in more funds, he adds. Professor Krishna, though, is cautiously optimistic about this move. “Investments in infrastructure are clearly necessary. I guess I am not sure as to what the particular motivations are to use funding sources such as the LIC. I look forward to an explanation of the rationale for this move and also a description of process,” he tells Open. The Railways’ expansion plans are constrained by land acquisition hold-ups and a bunch of other legal complications. “But then it is such hassles that the Modi Government is trying to get rid of, since it wants to forge ahead with promoting growth so as to raise enough money to spend on social sector schemes,” says a Finance Ministry official. “True, the Government has come under attack for being neo-liberal in its policies, but anyone with some experience in governance knows only too well that what India needs is what China has done: develop infrastructure at any cost and invite as much funds for it to pull a large chunk of people out of poverty.”

As is well known, modernising Indian Railways is one of Modi’s top priorities, as he expects the overhaul of Asia’s largest rail network under a single entity to become ‘a driver of rural development’. “LIC’s pledge to invest huge sums in new trains, research and development, etcetera, has to be seen in this context,” a Union minister tells Open.

Another BJP leader is of the view that Modi, who doesn’t want his image as a doer to lose its shine, is keen to flag off as many infrastructure projects as possible to flaunt in forthcoming elections. “Whether it is politics or not doesn’t matter to us. We are interested in being part of India’s growth story, and the new Government, unlike the previous one which had lost its sting towards the end, is showing enough promise in acting to facilitate development and usher in opportunities,” says an overseas fund manager who had attended the Prime Minister’s dinner.

A Union minister argues that at a time when “anything and everything is seen from the eye of a political motive”, one has to realise that since taking charge, Modi has adopted market-based energy pricing, permitted more foreign investment in India’s defence industry, and has outlined a clear plan to revive the manufacturing sector through his ambitious ‘Make In India’ programme. “All of them highlight his reform and development agenda, while keeping the poor in mind,” he says. “You will see more investments flowing into restructuring the Railways and many other sectors,” he adds.

But then, the astute politician that Modi is, he is not unaware of the need to retain his halo as a benign reformer who would endear himself to industrialists and the common man alike. “Especially in the aftermath of the poll setback in Delhi, he wouldn’t want the poor to feel that things are the same as they were during UPA rule,” the Union minister says. “What he wants is to drive growth and create the impression that the Government is good for the aspiring middle classes and the under classes.”

Such a campaign doesn’t work without huge expenditure, and for that, funds from across the globe are required besides tapping all avenues back home, he explains. Modi’s efforts to push through the Land Acquisition bill explain his motives, adds this minister. Though the ruling NDA recently faced humiliation in the Rajya Sabha where the opposition had forced amendments to the Motion of Thanks on the President’s address, in the Lok Sabha, when the bill was put to vote, it managed support from allies like Akali Dal which had criticised the law as well as the Lok Janshakti Party. It also got the Shiv Sena not to vote against it, while the Biju Janata Dal (BJD), which is vehemently opposed to the bill, staged a walkout. BJP insiders say that since confrontation has become the name of the game in Parliament, the Modi Government wouldn’t hesitate to call a joint session to pass crucial amendments as part of its efforts to woo global investors for big projects. “My guess is that Modi is determined to do that,” says a senior government official who also dispells the notion that ever since the BJP suffered a rout in Delhi’s polls, it might opt for populist measures to attract votes. In the 7 February election to the Delhi state Assembly, the Arvind Kejriwal-led Aam Aadmi Party won a landslide victory, blotting out the BJP and eliminating the Congress in the state’s 70-member house, winning 67 seats. “It was without doubt a huge setback for the image of Modi and the BJP leadership who were seen as infallible and who never lost any state election where the Prime Minister campaigned ever since he won the 2014 General Election,” admits the first BJP leader. “The invincibility of the BJP campaign machinery suddenly got a rude jolt. But then it won’t idle away in the months ahead of the forthcoming elections. I tell you, they have learnt a lesson. And instead of taking the populist route, they will go for aggressive reforms and crank out projects at a faster pace than you can imagine,” claims this leader.

There will be no dearth of schemes and announcements that appeal to the middle- class, avers the second BJP leader. “In the face of attacks that he hasn’t done enough to retrieve black money stashed away abroad so far, Modiji wants to live up to the expectations of people and will do something meaningful to track down untaxed money hidden in tax havens abroad. The lengthy space given in the Union Budget presented by Mr Jaitley to black money is an indication of Modiji’s resolve. Don’t be surprised to see many implosive findings soon,” claims this BJP leader. “Efforts to get black money are on, especially with the opposition loudly attacking the Prime Minister for merely offering lip service in this regard,” notes a government official close to the matter.

The official also suggests that the announcement in the Union Budget of a gold monetisation scheme could be a game-changer in tracking black money. In his Budget speech, Jaitley said: “The new scheme will allow depositors of gold to earn interest on their metal accounts and jewellers to obtain loans on their metal accounts. Banks and other dealers would also be able to monetise this gold.” India, one of the world’s largest consumers of gold, imports close to 1,000 tonnes of the yellow metal annually. The scheme is expected to draw idle gold into the system. Jaitley also announced the creation of a sovereign gold bond that will offer a fixed rate of interest and could be redeemed in cash. This means that instead of buying gold in physical form, you could get a bond issued by the Government that says you own a chunk of gold. Later, you can redeem it when the tenure of the bond expires. “This, in the long run, is a neat ruse to get unaccounted-for money out,” claims a Finance Ministry official. “Of course, there is politics behind convincing global investors that India is an attractive destination for investment by promising them a fair and predictable tax system. What is wrong with that? Prime Minister Modi’s ambitions are not bad for his country,” declares this official.

Modi, who has spearheaded a series of election victories in the past several months, including Maharashtra, Jharkhand, Haryana and Jammu & Kashmir, doesn’t want to leave any stone unturned when it comes to outlining and implementing new projects. “This is, of course, because he is a constant campaigner and wants to learn from setbacks. This is also because he wants to make a name as a reformer Prime Minister who makes India an economic powerhouse of the world,” avers the first BJP leader. “Modiji thinks both short-term and long-term,” he adds. In Bihar, where polls are due this year as the tenure of the current assembly expires on 29 November, the BJP faces a united opposition following a major realignment of forces that has brought sworn enemies Lalu Prasad of the RJD and Nitish Kumar of JD-U on one platform.

Modi watcher and India-US relations expert Michael Kugelman feels that Modi will definitely need to strike a balance between pro-business moves— from infrastructure spending to austerity measures—and populist policies that target the masses. “It’s a tough balancing act, though one that Modi believes he can pull off. In the next few weeks and months, we’ll get a better idea if he’s right.”

Unprecedented Moves

The Modi Government, with its intention to tap all possible resources, wants to use the armed forces for civilian work, a model in active practice in countries such as Israel. “This could be under consideration, especially in the Railways and perhaps in projects such as the cleaning of the Ganga and similar projects,” says a Government source. With 1.3 million people on its rolls, India’s armed forces are the world’s eighth largest employer. “The logic of using the armed forces’ personnel in civilian work —which is rare and largely unprecedented except in times of emergencies— is to maximise staff utility,” says another official in the know. “The forces have fought wars only for a few months, but they have been around since Independence, maintained by the Government. So, the idea is to use their services thoroughly well. The advantages are manifold: the armed forces have the best of engineering talent and their volunteers are disciplined and punctual. They are trained to build under duress. Their participation in civilian work will also mean speedy implementation of high-class projects,” he adds.

Indications are that Prime Minister Modi would like to use the services of Army personnel to set up railway lines connecting Hindu pilgrim centres in the Himalayas, one of his pet projects, and also to build roads to far-flung areas, especially in the Northeast where his party wants to gain a foothold. “I would call it a revolutionary move,” says the second BJP leader. “Why should the forces waste their energy in bunkers cleaning up bricks and idling away despite possessing impeccable engineering skills?” he asks. Looks like an irresistible suggestion indeed. And Modi would want to make the most of such an opportunity.