That sums up private participation in Indian infrastructure, with investment plunging 84% in the first half of 2014 from its peak in 2012 even as the economy grew at the second-fastest pace among major markets.

Prime Minister Narendra Modi is moving to eliminate those bottlenecks, which Ernst and Young said cost the economy at least 2% of growth a year. After easing financing for airports, highways and power plants, he’s now proposing an infrastructure company to attract investment from some of the world’s wealthiest organizations.

The government will use ₹ 20,000 crore to establish the company, which will be called National Investment and Infrastructure Corp. (NIIC), said officials with knowledge of a note prepared for cabinet approval later this month.

The government and public sector entities will hold 49%, with the rest offered to multilateral development banks, sovereign wealth funds, pension funds and other organizations, they said, asking not to be identified because they aren’t authorized to speak with the media.

NIIC will then buy shares in existing infrastructure lenders such as Rural Electrification Corp. and Power Finance Corp., which will provide debt to selected projects.

A private sector company can treat each infrastructure project as a special purpose vehicle, which should enhance monitoring, said Deven Choksey, managing director at KR Choksey Shares and Securities Pvt., a Mumbai-based brokerage. “Decision- making will be prudent and faster," he said.

Top five

While the government’s large stake will give NIIC quasi-sovereign status, external asset management companies will be in charge of treasury operations and the investment team’s salaries will be on par with the private sector to attract top talent, according to the proposal.

Finance ministry spokesman D.S. Malik declined to comment.

Boosting infrastructure investment by 1% of gross domestic product (GDP) could add 3.4 million jobs, McKinsey estimated in 2013. In the eastern state of Assam, a 1 percentage point increase in the electrification rate boosted literacy by 0.17 percentage point and upgrading water and sanitation in a slum in the western Ahmedabad city lowered health insurance claims by 50%, according to the report.

Private participation in Indian infrastructure fell to $3.6 billion in the first half of 2014 from a peak of $23.8 billion two years earlier, World Bank data show. Even so, India’s investment was among the top five, after Brazil, Turkey and Mexico, and ahead of China.

Modi steps

Successive governments have attempted to lure investment, with little luck. The gap between electricity demand and supply widened to 87 million units in 2012/13 from 73 million in 2007/08, government data show.

The administration, which has a backlog of ₹ 13.5 trillion of stalled projects, plans to spend ₹ 1 trillion on infrastructure this year, junior finance minister Jayant Sinha said Monday. In his first year in office, Modi has reduced capital requirements for private airport developers, agreed to fund as much as 40% of public-private highway development, and allowed companies to own the power plants they build to make it easier for them to get loans.

“It is clear from both government statements and actions that the nature of the problem has been recognized," Subir Gokarn, a former central bank deputy governor and senior fellow at Brookings Institution, wrote on its website. Bloomberg

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