Infrastructure Financing: A Vital Need for the Development of India

Summary: The article addresses the deficiencies of infrastructure in India and how they affect the growth of the country. Moreover, the steps ensured by the Government for the increased investments in the infrastructure sector.

India’s infrastructure until recently has been regarded as inadequate and inefficient. From insufficient power, lack of proper roads and railways that were overwhelmed with old technology. Congestion and inefficiency of these segments have been named the major concerns to the growth and development of the nation. The slow pace of infrastructural growth has been regarded as a major limitation in sustainable growth and attracting foreign investment or business in India.

These projects were typically financed by the public sector, leading to a lack of funds and quality of service. However, reforms in the 1990 influenced the flow of private investment. As large financial investments in infrastructure are vital for the inclusive growth of the Indian economy.

The Infrastructure sector is a key driver for the growth of the Indian economy, which enjoys great focus from the present Government who actively initiates policies to ensure the creation of state-of-the-art connectivity in the country. This type of development has the potential to unleash India’s complete potential for both global and domestic investors.

Infrastructure sector has market segments such as the construction of roads, bridges, dams, power stations and more, which offers a great investment opportunity for domestic and global investors.

According to statistics, India requires approximately Rs 31 trillion for infrastructure-development, around 70 percent of which is expected to be invested in the development of efficient power, roads, and inner-city segment. The country has a need for investments more than Rs 6 lakh crore every year or Rs 1,700 crore every day from April 2015 until March 2020 to provide uninterrupted power supply to residential and commercial sectors and improve roads, telecommunication, transport and other urban substructure facilities.

Financing These Capital Incentive Infrastructure Projects

The massive investment requirement of the Indian infrastructure sector directly translates into great opportunity for infrastructure companies in India. India has received foreign direct investment (FDI) worth US$ 24.09 billion for Infrastructure development between April 2000 to June 2015.

Government regulations to Aid Efficient Development:

In order to aid the private investment at the required pace, the Government has taken strict measures to form an enabling policy and regulatory framework, that can help attract private capital for development. Thus, promoting Public-Private Partnership (PPP) as the main means for attracting private investment in infrastructure plans.

The Government and RBI have taken following efforts to ensure investment into the sector,

• Establishing of India Infrastructure Finance Company Limited (IIFCL).
• Approval of The National Investment and Infrastructure Fund (NIIF) to extend equity support to infrastructure Non-Bank Financial Companies (NBFC), such as issue of tax-free bonds for railways, roads and irrigation programs.
• Issuance of rupee-denominated bonds in overseas markets.
• Issuance of Infrastructure bonds by IFCI, LIC, and IDFC with tax deduction incentives for individual taxpayers.
• Promotion of FDI.
• Viability Gap funding.
• Promotion of bank lending.
• Relaxed ECB (External Commercial Borrowings) regime for infrastructure finance companies in India.
• Increased Allocated budget.

As per the twelfth plan, from a total of $1000 billion, nearly 48% is estimated to come from private sector led by Public Private Partnerships. The residual 52 % is expected to be raised through budgetary support and debt finance by the government.

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The author of this article shares information about the government’s crucial need of finance services from infrastructure companies in India.