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Abu Dhabi, UAEMonday 25 June 2018

ADIA $1bn infrastructure deal in India is a clever move

Infrastructure spending is a key component of India's future growth

The Abu Dhabi Investment Authority (Adia), one of the world's biggest sovereign wealth funds, is investing US$1 billion in an infrastructure fund in India, Asia's third largest economy, and the timing couldn't be better.

As part of its agreement with India's quasi-sovereign wealth fund, the National Investment and Infrastructure Fund (NIIF), Adia will become the first institutional investor in NIIF's Master Fund as well as a shareholder in National Investment and Infrastructure Limited, the NIIF's investment management company.

The corpus of NIIF is proposed to be about $6bn, with a 49 per cent investment from the government, and will raise third party capital for the remaining $3bn from long term international investors, such as sovereign wealth funds, insurance and pension funds, endowments among others, according to its website.

Adia's investment comes at a time when India is banking on its spending programmes to help fuel growth in one of the world's fastest growing economies.

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The investment also comes at a pressing time for India as it suffers from potholed roads, rickety trains and congested airports, that are not enticing of foreign investors.

No wonder then that India's transport infrastructure sector is expected to grow 6.1 per cent this year and 5.9 per cent through 2021, the fastest-expanding segment of the country's infrastructure sector, according to BMI research, as the country seeks to repair crumbling infrastructure impeding human development potential. Finance Minister Arun Jaitley has said that the country needs $1.5 trillion in infrastructure investment over the next decade in order to reach the 8 per cent annual growth needed to create enough jobs for school leavers.

Already this year the Asian country announced a record $59bn spending to build and modernise its railways, airports and roads to cater to the needs of its 1.3 billion population.

As a savvy investor, Adia is banking on the country's growth to help lock in returns commensurate with its overall strategy.

The sovereign wealth fund said in its annual report this year that it expects much of the world's economic growth to come from developing nations, especially from China and India. With its agreement with NIIF, Adia is putting its money where its mouth is.