Infra Financing

International Research Journal of Finance and Economics ISSN 1450-2887 Issue 55 (2010) © EuroJournals Publishing, Inc. 2010 http://www.eurojournals.com/finance.htm

Financing Infrastructure Projects in India from Corporate Finance to Project Finance

Vikas Srivastava Corresponding Author Associate Professor, National Institute of Bank Management PO: NIBM, Kondhwe Khurd, Pune, India E-mail: vikshad@yahoo.co.in Tel: +91-20-26716345; Fax: +91-20-26834478 Ashish Kumar Astt. Vice President, IFCI Venture Capital Funds Ltd IFCI Tower, Nehru Place, New Delhi India Abstract A major area of concern for sustaining the real gross domestic product (GDP) growth in India has been lack of adequate infrastructure, which can support the growth process. The deplorably low levels of public investment have rendered India’s physical infrastructure incompatible with large increases in the national product. Clearly, without improving the rate of infrastructure investment, the overall growth rate at best would remain modest. Empirical research validates that the economic advancement of a nation critically hinges on the adequacy of infrastructure availability. In the light of huge financing gaps for financing infrastructure projects and constraints on all sources of funds including bank funding, there is rise in using project finance as a tool for financing capital expenditures particularly the investments in infrastructure projects in India. It clearly highlights the association of financing and value creation for the firm. This paper attempts to study project financing as an alternative method of financing infrastructure projects in India and why should project finance be used, instead of traditional or conventional financing methods so that value can be enhanced. The paper looks at the problem from a lending bankers point of view.

Keywords: Infrastructure Finance, Project Financing, Non-Resource Debt, Leverage, Agency Conflict, Underinvestment, Financial Distress JEL Classification...