Sujay Mehdudia

Projects for urban, rural areas in operation

  • Global venture capital funds keen on financing IIFCL
  • Bharat Nirman scheme to strengthen rural infrastructure

    NEW DELHI: When Finance Minister P. Chidambaram rises to present the general budget in Parliament on February 28, one of the major areas of concern as well as focus will be the fast rising need for infrastructure development.

    With the economy poised for a 9 per cent growth and major global players turning their attention towards India as the next happening place as far as investment and manufacturing are concerned, lack of adequate infrastructure, including roads, highways, ports, bridges, airports, power, water and related issues, can hamper the growth rate, some thing that will weigh heavily on the Finance Minister's mind. Not only this, the Finance Minister will be faced with the task of consolidating the gains of the major infrastructure initiative Bharat Nirman launched by Prime Minister Manmohan Singh in 2005.

    Major concern

    The inadequate infrastructure has become a major area of concern with the growing demand for pumping in huge investments and to involve big players to set right the present dismal situation.

    According to a recent Federation of Indian Chambers of commerce and Industry-World Bank research paper, India needs infrastructure investment of $70 billion annually in the next five years to sustain its high level of GDP growth. It further states that for an estimated 7.5 per cent GDP growth, the infrastructure will require investments amounting to about five per cent of GDP plus a further two per cent of GDP for capital replacement.

    Keeping this in mind, a special purpose vehicle (SPV), India Infrastructure Finance Company Ltd. (IIFCL), was recently formed for financing major infrastructure initiatives. IIFCL has received sovereign guarantees for raising Rs. 5,000 crore for funding big-ticket projects. Memoranda of Understanding (MoUs) with Canara Bank, Vijaya Bank and Syndicate Bank have been signed by IIFCL. IIFCL is now in discussions with a clutch of institutions for raising Rs. 7,000 crore for meeting its project funding requirements.

    Loan syndication

    Several global venture capital funds have also expressed interest in extending the funds to IIFCL either directly by way of debt or in the form of equity.

    IIFCL's funding for projects will be in form of direct participation in project loan syndications along with the banks or in the form of refinancing support to the lending institutions. This is because bank finance for infrastructure is likely to face asset liability mismatch problems in view of the long lending tenures. The MoUs with the three banks involves providing IIFCL's support in their project lending efforts.

    Till date IIFCL has sanctioned Rs. 6,800 crore for infrastructure projects involving a total project cost of Rs. 45,000 crore. Canara Bank is the lead bank in 13 projects, followed by Syndicate Bank (four projects) and Vijaya Bank (two projects). So far, IIFCL had signed 10 MoUs with banks and financial institutions. Funding requirements for infrastructure are estimated at $360 billion or about Rs. 3 lakh crore annually. Even assuming a conservative debt:equity ratio of 3:1, bank funding will have to be at least Rs. 2.25 lakh crore each year.

    As for the Bharat Nirman aimed at strengthening rural infrastructure and the proposal for specific financing window for the Rs. 1,74,000-crore programme, the delivery model involves panchayats and the private sector as partners. The four-year programme aims at achieving the identified goals in six select areas of rural infrastructure irrigation, water supply, housing, roads, telephony and electrification.

    The Government plans to build 60 lakh houses to address rural homelessness and add 10 million hectares to irrigation capacity. It also aims to electrify by 2009 over 100,000 villages that are still without electricity connections. This coupled with the Rs. 1 lakh crore Jawaharlal Nehru National Urban Renewal Mission fund for upgradation of cities is likely to give a new deal to both rural and urban economies.

    Dr. Singh this month launched the Backward Regions Grant Fund (BRGF) aimed at bridging regional disparities in development.

    A total of 250 districts were being taken up under the BRGF and Rs. 3,750 crore had been provided to the fund for the year with each district receiving an additional Rs.15 crore annually exclusively for developing infrastructure, the Prime Minister said.

    All these are being seen as major funding initiatives to upgrade the infrastructure both in urban and rural India.