NEW DELHI, July 3 – Abu Dhabi has promised to invest $50 billion in India’s cash hungry infrastructure at a time when growth in Asia’s third-largest economy has sharply slowed, a newspaper reported Wednesday.
The pledge by Abu Dhabi was the key factor in pushing New Delhi to approve a bilateral deal to increase flights between the two countries, an Indian official told the Indian Express.
“A commitment to invest $50 billion in the infrastructure sector of the country by Abu Dhabi was a key reason for us to agree to the increase,” a senior government official, who declined to be named, said.
News of the investment comes just months after the International Monetary Fund criticised India for not improving its creaky infrastructure during the period it experienced growth rates close to double figures.
The IMF said in February that India would likely see slower growth than expected in 2012/13 at 5.4 percent and pay the price for failing to ensure investment in infrastructure kept pace with economic growth in the previous decade.
The plan to increase flights between the UAE and India is linked to a controversial proposal by the Abu Dhabi based Etihad airline to purchase a 24 percent stake in India’s Jet Airways for 20.5 billion rupees ($342 million).
That deal, the largest foreign investment proposal in India’s aviation sector, faces regulatory hurdles, with many ministries raising objections over the bilateral increase in flights as well as over control of Jet after the sale.
“The increase was arrived at based on the request for a hike in entitlements made by various carriers, including Jet,” the government official said.
Many of the new seats a nearly three fold jump from 13,000 to 36,600 seats would go to Jet and Etihad.
India’s opposition has alleged that the increase in flights was aimed at clinching the Jet Etihad sale and could divert vital business from ailing state run flagship Air India.
The Jet Etihad deal, announced in April, marked the first overseas investment in an existing Indian carrier since New Delhi eased restrictions to allow foreign firms to take up to a 49 percent holding in the country’s airlines.
But a request by the Indian prime minister’s office on Monday for the plan to be discussed by cabinet provoked new worries about the fate of the sale and sent shares of Jet plunging six percent.