Mr. Nitin Gadkari, Minister of Road Transport and Highways, and Shipping has said, “The government’s target of Rs. 25 trillion (US$ 376.53 billion) investment in infrastructure over a period of three years, which will include Rs. 8 trillion (US$ 120.49 billion) for developing 27 industrial clusters and an additional Rs. 5 trillion (US$ 75.30 billion) for road, railway and port connectivity projects.”

Obviously there is a need of increasing the sources of funding. Funding in infrastructure is typified by non-recourse or limited recourse funding, large scale investment, long gestation period, high initial capital, low operating cost, repayments from the revenues generated from the project. Largely the Government has been the sole financier and responsible for implementation, operations and maintenance of these projects. However to plug-in the gaps of fund availability through public sources, following are the options that need to further encouraged for participation-

  • Public Private Partnership (PPP)
  • Bank Financing
  • India Infrastructure Finance Company Ltd (IIFCL)
  • Infrastructure Financing Companies (IFC)
  • Foreign Direct Investment (FDI)
  • Foreign Institutional Investment (FII)
  • Infrastructure Bonds
  • Takeout Financing

Most of these funding sources have not resulted in desired level of participation, because of the combination of various practical, operational and provisions related issues. For instance, the bank credit comes with issues to asset liability mismatch, as infrastructure requires long term funding and the banks offer only short term basis. This was the reason, IIFCL was formed to provide long term debt financing. It provides 20% of the project costs through either direct lending or refinancing banks and financial institutions. Only recently 100% FDI is permitted under the Automatic Route in Development of townships, Housing, Built up infrastructure and Construction Development Projects but does not include real estate business.