Indian Summer

One. Two. Three. Four. Five. Six. Seven. Eight. Nine. Ten.

In the time it took you to read that, five people were born in India, according to the population clock at the Union Health Ministry in New Delhi which ticks away at 31 persons per minute. These babies were not born into the agricultural poverty of their ancestors but into a rapidly changing urban world – into modern India.

The Indian Subcontinent has 10 of the 30 fastest-growing cities in the world and is currently witnessing rapid urbanization. But India’s urbanization rate of 29% is still very low compared with 43% for China, 67% for Malaysia and 81% for South Korea. Economic projections from Goldman Sachs indicate that another 140 million rural dwellers will move to urban areas by 2020, while a massive 700 million people are expected to urbanize by 2050.

This population shift highlights the acute need for urban housing and infrastructure investment in India and private equity players from around the globe are rushing to fill the gap. Private equity investment in India has nearly tripled from $2.2 billion in 2006 to $6.2 billion in 2007, according to Thomson Reuters. Statistics from Merrill Lynch show that the real estate sector alone attracted over $5 billion in foreign investment in 2007. Recently, many real estate valuations hit unrealistic levels and there were fears of an asset price bubble. In response the Reserve Bank of India tightened it’s lending to real estate and despite private equity funds raised recently to address this imbalance there is still a capital shortage.

CDC, the UK government-backed private equity emerging market fund-of-funds investor is the latest private equity player to enter the Indian real estate markets. Today, the group announced a $100 million commitment to the Actis India Real Estate Fund. CDC also backed Kotak India Realty Fund to the tune of $50 million. The fund is the second to be managed by Kotak Mahindra Group, one of India’s conglomerate financial institutions.

Despite housing needs, India is also suffering from major underinvestment in Infrastructure. The Indian government has identified a need for a further $320 billion of investment in infrastructure by 2012 to support its growing economy. Approximately $160 billion has been invested in infrastructure in India over the past five yeas with 25% to 30% of this spend in private sector investment, according to IDFC a financial intermediary for infrastructure investment in India.

CDC is also investing in Indian infrastructure joining global players such as 3i and Macquarie Group. CDC has backed the IDFC India Infrastructure Fund with an investment of $100 million. The fund will be managed by IDFC Project Equity a newly established subsidiary of IDFC.

Modern India provides many investment opportunities to both global and local private equity players. Let’s just hope that it can provide some opportunities for those 31 born each minute too.