Financing Infrastructure in India

To give boost to the economic activities and accelerate the pace of growth in any economy, infrastructure development and spending are the key factors worldwide. India’s objective of double-digit growth requires a quantum jump in infrastructure sector capital formation. The level of investment in infrastructure, which increased from 4.5 percent of Gross Domestic Product (GDP) in 2003-04 to over 6 percent in 2007-08, requires to be further up-scaled to 9 percent by the terminal year of the Eleventh Five-Year Plan if the contemplated targets of GDP growth are to be met. The role of private sector participation needs to expand significantly to address the deficit.

The Honourable Prime Minister of India, while inaugurating the “Conference on Building Infrastructure: Challenges and Opportunities”, in March 2010, stated that the Planning Commission had estimated an investment of over USD 500 billion in infrastructure during the Eleventh Five Year Plan period (2007-08/2011-12). This was more than double the realized investment during the Tenth Five Year Plan. The Eleventh Plan also recognized that such a large investment in infrastructure could not be funded from the public resources alone. This is because the Government would have to necessarily devote a large portion of its own resources to critical livelihood support programmes and to providing access to education and health services which are crucial to ensuring inclusiveness of the growth process.

Preliminary exercises suggest that investment in infrastructure would have to expand to USD 1000 billion in the Twelfth Five Year Plan. The strategy for infrastructure development, therefore, involved combination of public investment supplemented by private investments wherever feasible. The overall share of private sector in total infrastructure investment is projected above 30 percent. The mix was, however, expected to vary from sector to sector, and also from region to region. Effective participation by the private sector in infrastructure would require a large mobilization of resources through various sources.

The Government of India has developed a fairly robust framework for Public-Private Partnerships which balances the legitimate requirements of the investors and the needs of the users and also ensures transparency. Model documents have been developed for several sectors. Projects are awarded on the basis of competitive bidding and standardization of documents and the bidding processes have contributed greatly to the promotion of transparency. The Government has also initiated ambitious plans for expansion of the roads, power, railways, civil aviation and port sectors, including through PPPs.

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