India unveils $5 billion initiative for infrastructure

India unveils $5 billion initiative for infrastructure
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First Published: Fri, Feb 16 2007. 04 52 PM IST
Updated: Fri, Feb 16 2007. 04 52 PM IST
New Delhi: The government’s wholly-owned infrastructure financing firm, India Infrastructure Finance Company Ltd. (IIFCL) has signed a pact with private-equity firms Blackstone Group Holdings L.P., Citigroup Inc. and Infrastructure Development Finance Company (IDFC) to raise $5 billion (Rs22,000 crore) for India’s infrastructure projects.
Out of this, $2 billion will accrue in equity. IDFC will manage the equity-financing programme and invest $250 million along with Citigroup and Blackstone, said a finance ministry statement.
IIFCL will be the vehicle through which the debt portion of the funds will be routed over the next three years.
The projects to which IIFCL will lend will be appraised by IDFC and other institutions.
The government estimates the country will need $320 billion over the next five years to fund infrastructure projects. Power projects will account for the bulk of funding needs.
India’s need to provide world-class infrastructure that keeps pace with more than 9% economic growth is clear. City roads are choked with traffic, power cuts are a fact of life and passengers are routinely delayed as booming air travel tests airport capacity.
According to the World Bank, the price India pays for inadequate infrastructure is 1% a year in foregone growth.
“Weak infrastructure continues to be the Achilles’ heel of the Indian economy,” concluded the finance ministry’s Mid-Year Review, 2006-07.
The economy, which has grown annually at around 9%, over the last two years, is already running at full steam in many critical sectors. A huge booster infrastructure investment will be needed to match capacity increases of individual sectors.
Cement output, for instance, is close to the industry’s installed capacity of 165 million tonnes a year, said a commerce ministry official.
If stretched capacity in cement does not see enhancement in the long run, it will constrain other manufacturing industries, he added.
The finance ministry statement also quoted finance minister P. Chidambaram as saying, “this initiative is an important milestone in our search for innovative solutions to meet the vast challenge of financing the development of India’s burgeoning infrastructure sector.”
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First Published: Fri, Feb 16 2007. 04 52 PM IST