According to reports, International Finance Corporation, the World Bank’s private-sector lending arm, has no plans to cut its business in India despite a sharp slowdown in the local economy, as it bets on the country’s long-term growth potential to fetch attractive returns on its investments, a senior executive said.
“We take a counter-cyclical, long-term approach to investment, and as such the current downturn gives us a great opportunity to invest in projects when others are holding back,” Anita George, director for infrastructure in Asia, said in a recent interview.
The Indian economy is slowing as high interest rates at home and weak global demand due to problems in the U.S. and Europe are crimping industrial activity in the South Asian nation. A falling rupee that makes imports costlier and a lack of policy reform measures by the government are also hurting Asia’s third-largest economy.
Ms. George said the agency’s investment in India in the financial year ending June 30 is likely to be around $1 billion–about a quarter of IFC’s total exposure to Asia–and that the agency plans to keep up the investment momentum in the future.
“There’s no cut in funding into India, but we are scrutinizing deals much more closely and looking at areas such as credit risks and how [the] global economic slowdown could derail some projects,” she added.
“We are taking higher risks by investing now and hope we will be able to get commensurate compensation in the future,” Ms. George said.
India has been IFC’s top investment destination over the past three years. About 80% of agency’s investment in India is in the form of loans while the rest is through picking up equity stakes in companies.
Ms. George said the agency is focusing on the renewable energy sector, lending and investing in solar, hydroelectric, biomass and wind energy companies as well as funding private-equity funds specializing in clean-energy projects.
Turning to infrastructure, she said, “I think a lot of the money for infrastructure could come from the private sector; there are funds available in the market. But the constraint is a lack of bankable deals in this sector.”
Infrastructure spending has slowed over the past year due to high costs of capital and slowing industrial activity.
Ms. George said that there are projects, particularly in the roads and highways sector, where funding took place assuming interest rates would fall in the future, but a rise in capital costs has put these projects under financial stress.
IFC is looking to identify such projects where it can restructure finances and make them viable, she added.