Case for new models of funding infra projects

With the country facing severe infrastructure constraints and slow pace of implementation of mega projects, the Economic Survey called for putting in place new models of financing the infra sector to meet the funding requirement of $1 trillion in the XII Plan.

“In view of the massive requirement of funds, all efforts need to be made to attract big-ticket long-term investors such as strategic investors, private equity funds, pension funds, and sovereign funds,''' the Survey says.

“There is a need for introducing more innovative schemes to attract large-scale investment into infrastructure.

“Strengthening domestic financial institutions and development of a long-term bonds market may be critical,'' it states.

Stating that 50 per cent of the projected investment will come from the private sector in the next Five Year Plan, the Survey says, financing infrastructure will, therefore, be a big challenge in the coming years and will require some innovative ideas and new models of financing.

Taking a cue from the realisation of investment targets for infrastructure during the current Plan, the survey expresses hope that financing of the ambitious XII Plan investment target will be possible.

According to the Survey, bank credit to projects in the sector had witnessed a healthy growth of 48.4 per cent annually during 2006-11, increasing from Rs.30,286 crore during 2006-07 to Rs.1,46,767 crore during 2010-11. However, credit growth has turned negative in the current financial year and at Rs.70,155 crore, net credit to the infrastructure sector during April-December, 2011, was nearly 61 per cent lower than the same period of last fiscal, it noted. 

Private participation

The Survey also calls for creating a conducive environment for private sector participation with a transparent and credible regulatory mechanism for financing the infrastructure projects to reduce the pressure on public-sector funding.

Emphasising that the performance in core infrastructure sectors is still to a large extent dependent on public sector projects, the Survey says, in the next Five Year Plan, the public sector investment will need to increase to over Rs.22.50 lakh crore, a rise of over 71 per cent than the current Plan.