Govt guarantees mooted to make infra projects viable

Written by fe Bureau | New Delhi | Updated: Mar 16 2012, 09:26am hrs
A year after he announced the setting up of an infrastructure debt fund mechanism, the finance minister had to take a personal initiative to set up the first such fund in March this year by LIC, ICICI Bank, Citibank and Bank of Baroda. The time lag shows that financing of the infrastructure sector still poses a big challenge for the economy.

While the Economic Survey makes the usual noises about attracting long-term investors, private equity funds, pension funds and sovereign funds to the sector, it has suggested that the government would need to give guarantees more liberally for projects than it does now.

The survey has highlighted the need for strengthening domestic financial institutions and developing a long-term bond market. It, however, said the realisation of investment targets for infrastructure during the 11th Plan (2007-12) gives hope that the financing of an even more ambitious 12th Plan target may be possible.

The Planning Commission has projected an investment requirement of over R45 lakh crore during the 12th Plan period (2012-17); and at least 50% of this investment will come from the private sector against the 36% anticipated in the 11th Plan. Public-private-partnerships (PPPs) are expected to augment resource availability as well as improve the efficiency of infrastructure service delivery.

However, there is limited scope for a large increase in the domestic savings rate. There is a need for introducing more innovative schemes to attract large-scale investment into infrastructure, it said.

Credit growth to the infrastructure sector turned negative in the current financial year. The incremental credit flow to infrastructure during April-December 2011 was nearly 61% of the credit to this sector during the year-ago period and a significant reduction in credit flow was observed for the power and telecom sectors.

Besides financing, the infrastructure sector has also suffered due to a time lag in physical capacity creation and time over-runs. These not only delay availability, but also raise pricing and affordability issues.

The survey has pointed out that the performance of broad sectors and sub-sectors in key infrastructure areas in the current year presents a mixed picture. There was growth in power, petroleum refinery, cement, railway freight traffic, passenger handled at domestic terminals and upgradation of national highways. Coal, natural gas, fertilisers, handling of export cargo at airports and number of cellphone connections showed negative growth. Steel sector also witnessed moderation in growth.