Indian infrastructure begs better bond market

By Charlotte Cooper and Himangshu Watts

MUMBAI (Reuters) - India urgently needs to develop its debt market to turn its pool of domestic savings into the hundreds of billions of dollars needed to upgrade its overburdened infrastructure and accelerate economic growth.

Foreign firms investing in the galloping economy have long complained that choked ports, potholed roads, erratic power supply and inefficient railways are the biggest hurdle to doing business efficiently in the country.

Now domestic industry, running its plants at full capacity after several years of 8-9 percent growth, is striving for more efficiency to counter a rising rupee and soaring wage costs, and it too is demanding better networks from the government.

"They know if they want to match the scale of China they can't do it without infrastructure," Manisha Girotra, who heads the Indian operations of UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz), told the Reuters India Investment Summit.

The government says $500 billion needs to be spent over the next four to five years to strengthen the country's transport and power backbone, and bankers say such long-term projects cannot be funded just by equity and bank loans. They require much longer-term lending -- which can only come from the debt market.

"Just the domestic sources of funding and the plain-vanilla sources of funding are not going to be able to take care of this," Chanda Kochhar, joint managing director at ICICI Bank (ICBK.BO: Quote, Profile, Research, Stock Buzz), said at the Reuters Summit.

India has seen a steady increase in bond issuance, although its fevered share markets have made equity a more popular vehicle for raising capital in recent years.

Debt issuance has risen 47 percent this year to $25.7 billion, data from Thomson Financial shows, with the bulk in the local currency, although offshore offerings are on the rise.  Continued...