Infrastructure financing: sources and schemes in India

Infrastructure deficit is one of the leading development challenge at present for India. For the expansion of infrastructure, the Twelfth Plan aims to spend nearly 8.26 % of GDP with a total target of $1000 bn in transportation, energy, communication etc. The difficult part is to mobilise this whopping amount. Traditionally, the government through the budgetary expenditure was making infrastructure investment. But the present requirement is very huge for government and over the last ten years, several measures were made by the government to mobilise finance.

As per the twelfth plan, out of the total $ 1000 bn, nearly 48% is estimated to come from private sector led by Public Private Partnerships. The remaining 52 % is expected to be made by the government through budgetary support and debt finance.

Both the government and the private aims to make borrowing from the banking system, capital market, ECBs (External Commercial Borrowings) etc.

The Government and the RBI have made the following efforts to attract investment into the sector:

  1. Setting up of India Infrastructure Finance Company Limited (IIFCL).
  2. The National Investment and Infrastructure Fund (NIIF) has been approved to extend equity support to infrastructure Non-Bank Financial Companies (NBFC). Issue of tax-free infrastructure bonds has been allowed for rail, roads and irrigation programmes.
  3. Issue of rupee denominated bonds in overseas markets.
  4. Infrastructure bonds to be issued by IFCI (Industrial Financial Corporation Limited), LIC, and IDFC (Infrastructure Development Finance Corporation) with tax deduction incentives for individual tax payers.
  5. Promotion of FDI in the infrastructure sector: To facilitate infrastructure financing 100 per cent FDI is allowed under the automatic route in some of the sectors such as mining, power, civil aviation sector, construction and development projects, industrial parks, petroleum and natural gas sector, telecommunications, railways and special economic zones.
  6. RBI promotes bank lending for the infrastructure sector. 
  7. Viability Gap funding
  8. Liberalized ECB (External Commercial Borrowings) regime for infrastructure companies. Companies can avail upto $ 750 mn for infrastructure projects.
  9. Use of foreign exchange reserves for infrastructure projects through (IIFCL)
  10. The RBI has categorized infrastructure lending NBFCs into a special category and allowed concessional type of operations to them.
  11. The central government has successively increased its allocation for the sector in each budget. The budget 2016-17 allocates nearly Rs 2 lakh crore with road sector itself getting Rs 70000 crore funds from the budget.
  12. FIIs are allowed to invest in infrastructure debt funds. Besides, QFIs are also encouraged to make investment in the sector especially through financing of bonds.
  13. Take out financing scheme.
  14. Green bond scheme.