Infrastructure Financing

An Overview of Infrastructure Financing in India and Future Options

November 17, 2007

Rajiv Lall, Ritu Anand and Nirmal Mohanty Infrastructure Development Finance Company

Think Infrastructure. Think IDFC.

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Introduction

Economic (9% growth per annum) India’s medium-term ambition Political (Inclusive growth) Infrastructure has a significant role to realize both. Government envisages a rise in infra spending from 5.6 % of GDP in 2006/07 to 9.2% in 2011/12 to enable 9 % GDP growth in XI Plan. Two sets of issues are impeding investment in infrastructure: - Sector governance (brief discussion) - Financing system (focus of discussion) Inability to meet the specific requirements of infrastructure projects

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To support accelerated investment in infrastructure, sector governance must change.

Two characteristics of recent approach to infrastructure investment − Declining dependence on budgetary resources − Increasing reliance on private participation Challenges for sector governance emerge from: − reduced budgetary support User charge financed strategy needs to assure investors of adequate payment security (over a long period) and consumers of competitive tariff − Higher private participation Level playing field, greater consistency and predictability of `rules of game’ and public consultations But political economy is inhibiting such change in governance − Govt unwilling to give up its role as provider and regulator, although it is creating facilitating frameworks; for example: Newly created state-owned power utilities are acting as extension of Government `Open access’ is provided by Electricity Act, but States have been reluctant to phase it in Investment will be impeded if governance response is not appropriate

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GCF in infrastructure: bottom-up estimates by PC

(At 2006-07 prices) Year 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Total (XI Plan) 2006/07 prices Current prices Eleventh Plan Period GDP at market prices ($ billion) 1,006...