THE SENIOR ANALYST
Funding the Indian
Infrastructure Growth
An ambitious target of $ 1 trillion of
Story
infrastructure investment in the 12th five-year
plan seemed to be the right way forward few
years ago with growth having stagnated to low
single digit numbers post-recession compared to
the double digit numbers pre-recession. But there
have been apprehensions regarding the sourcing
of funds for the huge leap to Rs 52 lakh crores in
the 12th plan from Rs 27 lakh crores in the
previous plan. Commercial banks have
traditionally been the primary source for
infrastructure projects, with underdeveloped
Indian debt markets, but these banks are under
greater stress than ever with high growth in
demand of funds and stricter capital adequacy
norms set to come to force. India’s response to
the infrastructure financing requirements is likely
to have a major impact on the economic growth
trajectory of the country.
Jan 2014
The economic downturn has had a severe impact
on the financing needs of infrastructure projects
as the high demand hasn’t been met by the
suppliers of funds. This has led to only the quality
projects being selected for funding which seem to
be low in number. Lack of depth in financial
markets, lack of innovation in instrument
structuring and lack of alternate sources have
been the major challenges of the sector which
have led to an increase in cost of funds as well.
On the other hand, with the government’s focus
on infrastructure development we are set to
witness huge capacity expansions across all the
verticals of rail, road, power, ports and airports.
This provides an opportunity for all stakeholders
including financial institutions, developers and
material suppliers to play a role in the country
realizing its true potential.
For several decades post-independence, the
Government was the main source of
infrastructure investments in the country through
the channels of budgetary allocations or public
sector undertakings. Lately private sector has
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