The Planning Commission has estimated a shortfall of more than Rs1.6 trillion in the financing needs of the country’s infrastructure projects during the 11th Plan (2007-2012).
A consultation paper prepared by the panel projects total investments of more than Rs20 trillion to be made in infrastructure projects in the 11th Plan, an increase of nearly 2.5 times over the 10th Plan.
Industry experts say infrastructure is expected to be one of the biggest bottlenecks to the country’s economic growth target of above 9%.
However, infrastructure funding requirement cannot depend on budgetary support alone. It needs to be supplemented by debt funds. The Plan panel estimates that as much as half of the total expected investment is to be generated through debt financing.
Analysts, however, say the biggest hurdle to generating the projected investment is creating enough bankable projects to invest in.
“In order to attract debt funds, there is a need to improve project bankability and credit rating of projects through well-defined, escrowed user charges,” said Akash Deep Jyoti, who heads corporate and infrastructure rating for ratings firm Crisil Ltd. “Further, it would be imperative to facilitate rational risk allocation mechanisms, sound commercial terms, effective legal structures, faster clearances and lower transaction costs for superior project implementation,” he added.
A recent report by the committee on infrastructure financing headed by Deepak Parekh, chairman, Housing Development Finance Corp. Ltd, also warned that unless governance issues such as those related to levying correct user charges for infrastructure are addressed, even the most efficient financial system would not be able to mobilize the required resources, or create a large enough pipeline of bankable projects.
The paper estimates the availability of debt funds at a little over Rs8.25 trillion—Rs1.6 trillion short of the projected investment.
“Among the sources of debt funds, domestic bank credit for infrastructure is expected to contribute Rs4,23,691 crore, credit from non-banking financial companies (NBFCs) Rs2,24,171, crore, resources from pension and insurance companies Rs55,414 crore and external commercial borrowings around Rs1,22,263 crore...,” the paper said.
The paper said increasing budgetary outlays to meet shortfalls is not feasible because of competing demands for rural infrastructure and social sector development.
“The shortfall is likely to affect some key infrastructure building initiatives such as the Bharat Nirman programme for rural infrastructure and the National Highway Development Programme,” said a commission official who preferred not to be quoted.
“Infrastructure projects are typically financed by domestic financial institutions and from external commercial borrowings,” said Harsh Shrivastava, vice-president, marketing with Feedback Ventures Pvt. Ltd, a project management company. “While there may not be a crunch right now, in theory, what they (Planning Commission) are saying is correct,” Shrivastava said.