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Financing infrastructure

The Union Cabinet's decision to set up a Special Purpose Vehicle (SPV) to help finance mega infrastructure projects in the country has come not a day too soon. Given the steady growth in the Gross Domestic Product (GDP) over the past few years, and the concerted effort to place it on the eight per cent trajectory, building a world-class infrastructure is imperative. To meet the demands of different sectors at that level of GDP growth, infrastructure has to register a growth rate of 15 per cent. This is particularly true of core areas such as roads, ports, communications, power, utilities, and services. Industry spokespersons have been pointing to the infrastructure bottlenecks that have hit trade and the free flow of goods and services within the country and abroad. Viewed in that context, the proposed SPV should play a crucial role by way of helping to step up investments. The Cabinet envisages the SPV to be an entirely Government-owned entity and registered under the Company's Act, with the freedom to raise funds within the country and abroad, besides tapping the multilateral funding institutions including the World Bank and Asian Development Bank. That the Centre will guarantee the loans routed through the SPV — or Indian Infrastructure Finance Company Ltd. (IIFCL) as it is to be named — should provide an impetus to the borrowings. Consequently, there is the rider that this company will finance only commercially viable projects.

In the present scenario, there should be no dearth of funds. The IIFCL needs to first identify the commercially viable as well as long pending projects, whose non-completion has been a bottleneck for growth, and then devise the best means of financing them. Before the Centre goes through the formalities of incorporating the new company, the States and the key Union Ministries must prioritise the major infrastructure projects that need a funding mechanism to complete them early. Critical to their operational success will be the political will to levy reasonable user charges or tolls to make the projects viable and the return on investment adequate to start repaying the loans after the gestation period. There has been a determined bid to develop roads and ports across the country, and the privatisation has significantly improved communications. But much more needs to be done. It is perhaps the power sector that calls for greater focus because private sector projects have not come forth beyond a point and the State Governments appear quite reluctant to fast forward power reforms. The concept of Public-Private Partnership (PPP) is just catching up and needs more incentives to attract more investments. With the IIFCL mandated to provide up to 20 per cent of capital costs, more State Governments may now be willing to take up mega projects for which they could raise the seed money. A word of caution would be in order on the extent of borrowing, because the Centre and the State Governments have already piled up a huge debt.

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