Two years ago, when the world was in love with emerging markets, India could have attracted much of the capital it desperately needed to get its infrastructure act together. With interest rates low, debt capital was cheap and equity investors were desperate for the higher returns available in the faster growth countries of Asia.
Today, it is too late – at least for the time being. The cost of capital is going up and most investors are in risk-averse mode.
Since India has a current account deficit, it has to attract capital from the rest of the world. But banks are going to be less generous with their lending as a result of more onerous capital requirements. Issuers in the bond markets are finding that their borrowing costs have risen.
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