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India’s Infrastructure Sector Growth Slumped while GDP Improved

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Are the reforms and initiatives helping the sector? 

Despite the government’s efforts, the infrastructure sector seems far from being on the recovery path. Since the NDA (National Democratic Alliance) government came to power in May 2014, there have been several measures taken to spur developments in the infrastructure sector. For example, the NHAI (National Highway Authority of India) and the Ministry of Road Transport & Highways had sanctioned various projects. The projects include the development of 1,964 miles of highways and roads in 2014-15 and 1,452 miles in 2015-16.

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For national highways, the government intends to invest $31 billion in the next five years through the PPP (public private partnership) route. In railways, 100% FDI (foreign direct investment) is allowed for the construction, operation, and maintenance of suburban corridor projects through PPP. With Relaxed FDI norms in the construction sector, minimum area and capitalization requirements have been waived off. It would be now possible for foreign investors to invest in very small projects through the FDI route.

GDP growth has been picking up

Having mentioned the numerous landmark initiatives the Government of India has taken in the past 18 months, we will now see how the steps taken are affecting the infrastructure sector. The chart above shows the GDP (gross domestic product) growth rate at constant market prices. Within the last 18 months, India’s GDP has seen impressive growth. However, the same cannot be said about the infrastructure sector. In the next article, we will analyze the production growth of the core infrastructure sector.

India-focused mutual funds

For India-focused funds like the ALPS Kotak India Growth Fund – Class A (INDAX) and the Matthews India Fund – Investor Class (MINDX), this year has been dismal. As of December 22, 2015, the INDAX has given a negative return of 17.4% on a YTD (year-to-date) basis. The MINDX has given a negative return of 1% during the same period. Infosys (INFY), HDFC Bank (HDB), and ICICI Bank (IBN) are among the top holdings of the INDAX.

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