MUMBAI — As India seeks trillions in infrastructure investment to support a growing population and economy, Canada’s largest pension fund is looking to buy into the country’s digital transformation and energy transition.

The Canada Pension Plan Investment Board (CPP Investments) entered the Indian market in April 2010, and opened an office in Mumbai in October 2015, its sixth international site and second in an emerging economy. It had $19 billion in assets on the subcontinent as of March 2022, including stakes in several leading late-stage startups, office towers in major business centres, and private credit. That’s a sizable share of the fund’s $141 billion in assets across the Asia-Pacific region, which accounts for just over a quarter of its global holdings. 

CPP Investments did its first infrastructure deal in India in June 2014, making it an early mover among the many Canadian institutional investors now buying into projects and funds around the country. “India is a growth market and infrastructure has a very close relationship with the market growth,” said Kavita Saha, managing director for infrastructure in India, in an interview with The Logic at the firm’s office in Mumbai’s Bandra Kurla Complex commercial district. Both the market and asset class fit the fund’s focus on long-term investing.    

India’s population is steadily urbanizing and rapidly getting online, with the share of residents using the Internet jumping from 17 per cent in 2016 to 43 per cent in 2020, according to data from the World Bank. 

Digital infrastructure “has seen a lot of demand [and] growth,” said Saha, citing both telecom towers and fibre cabling as areas of opportunity. The sector “will definitely require capital” as telecom companies spend to maintain service standards and densify their networks to meet consumer expectations. Saha also foresees opportunities from the “introduction of new technologies, and enhancements [that] might be required to the existing infrastructure.”

The Indian central government will begin auctioning spectrum for 5G service later this month, with the country’s own big three of Reliance Jio, Bharti Airtel and Vodafone Idea expected to bid. Carriers will have to spend as much as ₹2.3 trillion ($41.4 billion) to build a nationwide network, Motilal Oswal, a Mumbai-based financial services firm, estimated in October 2020.

CPP Investments’ infrastructure business doesn’t own any telecom towers on the subcontinent yet, said Saha. It “still remains an opportunity for us to look for in India.” But the fund did acquire a 3.3 per cent stake in Airtel’s portfolio in March 2017 for US$300 million via an investment partnership. Saha said data centres are also “definitely of interest,” although server farms fall under CPP Investments’ real estate business. That arm has invested hundreds of millions each in joint ventures developing office, logistics and retail properties.

Other Canadian institutional investors are also dialling into the Indian digital-infrastructure sector. In August 2020, Brookfield Infrastructure bought 135,000 towers from Reliance in a US$3.4-billion deal, alongside partners including British Columbia Investment Management.

India’s energy consumption doubled between 2000 and 2021, driven by rising incomes and improving standards of living, according to the International Energy Agency (IEA). Much of that increased power has been generated by burning coal and oil. But greener sources are also on the rise. “India has been one of the largest markets for renewable power and the pace at which [it has grown] has been mind-boggling over the last few years,” said Saha.

At the COP26 conference in Edinburgh in November 2021, Prime Minister Narendra Modi announced a goal of having 500 GW in non-fossil-fuel generation capacity by 2030. (His government also successfully lobbied to dilute the language on coal in the summit’s final agreement). India had 113 GW of installed capacity from solar, wind and other renewables as of May, accounting for 28.1 per cent of the total, according to the national power ministry. 

The target “gives you very clearly the roadmap to how the sector is going to grow for the foreseeable future,” said Saha. CPP Investments has so far invested in wind and solar generation. 

Since January 2018, the fund has put about US$600 million into ReNew Power, accumulating a 21 per cent stake. The Gurugam-based firm has 12.8 GW of capacity and made ₹69.2 billion (US$912) million in revenue in its fiscal year ending March 31. 

Despite the renewable target, India’s central government has in recent months sought to increase coal production and state-owned power company NTPC is considering new plants, amid a heatwave. But Saha said she’s not concerned about the country’s commitment to renewables, calling the resurgence of fossil-fuel generation a “short-term phenomenon” in response to “unprecedented” energy demand, and not “a reason to question the longer vision.”

CPP Investments also sees opportunities in other parts of the power chain. “Transmission is an area of core interest for us,” said Saha, noting that could include upgrading existing infrastructure as well as participating in the government’s plan for a “green corridor” connecting projects to the grid. She also cited storage capacity that would enable renewable producers to provide around-the-clock power, although it’s “still in very early stages of discussion.”

While generation is the largest-scale opportunity in India’s energy transition in the short term, CPP Investments is monitoring other possibilities that will open up over time like hydrogen as well as energy services and technology. 

There are also industrial applications. “Core sectors in India like steel and cement are places where there is a lot of interest in seeing how [they can] either increase the energy efficiency or reduce the carbon intensity of operations,” Saha said. CPP Investments isn’t currently in discussions over any such projects, but sees opportunities to back firms that are adopting new technology or alternative fuels, or the service providers from whom they buy.

The fund declined to share a breakdown of its Indian assets by type or sector. But transportation makes up the biggest share of the infrastructure portfolio, according to Saha. The sector is both an enabler and beneficiary of economic expansion, she noted. “A road project… tends to drive growth, just by way of connectivity of the areas that it touches.” CPP Investments has stakes in several trusts that own toll roads on the subcontinent. In November 2021, it paid ₹15 billion ($257 million) for a 25 per cent stake in a venture established by the National Highways Authority of India. 

That’s not it’s only partnership with a public-sector entity. In December 2019, CPP Investments announced it would put US$150 million into the National Investment and Infrastructure Fund’s (NIIF) master fund and had secured the right to co-invest up to US$450 million in projects. The Indian government is NIIF’s anchor investor; other Canadian backers include the Ontario Teachers’ Pension Plan and PSP Investments. 

India needs US$1.4 trillion in infrastructure between 2021–2022 and 2024–2025 fiscal years to achieve the government’s growth target, the finance ministry estimated in January 2022. 

CPP Investments’ position in NIIF is a “complement” to its direct infrastructure business in India, allowing the pension manager to understand sectors that don’t yet have either the scale, available partners or regulatory maturity for it to invest itself, according to Saha. She cited smart metering and distribution, railways and water treatment and distribution as examples.