Can infrastructure investment provide a strong stimulus for the Indian economy? The answer is a roar but conditional is – conditional about how investment will be financed and spent.

Versus Leverage Size:

Discussion of policies on how to finance infrastructure focus on the size of potential fiscal stimulus. These are important aspects of financing infrastructure and are reflected in government fiscal allocation through various sponsored schemes, different funds such as the Consolidated Road Infrastructure Fund (CRIF), the allocation of financial commissions, and directly and indirectly through multiple development. Financial Institution (DFI).

Increasing fiscal allocation through these channels is always possible and is being carried out actively. But the amount of resources needed to finance infrastructure deficits – at least 7-8% of GDP per year – will be a challenge to fund directly from the annual fiscal allocation of the government.

Conversely, the need for hours is with pivot from focusing on the size of fiscal stimulus with an emphasis on leverage – how many public resources can crowded in the financial market. The latter allows more efficient and fair financing infrastructure. First, by facilitating investment financing costs from time to time, and second, by sharing costs with future investment beneficiaries made today.

But utilizing it should not be about supporting the public banking system.

Commercial banks in India are in the midst of a growing reform process that needs to be continued. The maturity of their money is not in accordance with the need for long-term infrastructure finances. Alternatively strengthens public DFIF to utilize the financial market and ensure that on loans for investment purposes are part of the Government Arsenal.

DFI can be leverage further, but their track record is mixed, and like commercial banks, their role will benefit from rethinking in terms of objectives and operational framework. Conversely, fiscus power may be best used to offer different mechanisms to access capital markets and investor institutions – pension funds and life insurance institutions – to finance infrastructure. DFI’s second generation that offers increased credit and bond insurance is the need for that day.

These institutions will offer an increase in credit, the first loss, and partial guarantees to enable infrastructure providers to access long-term finances from the international and local markets. Such an approach will accept additional filip if the regulatory framework also allows domestic institutional investors to increase their funds for infrastructure.

DFIS with a credit increase approach has three different advantages over traditional DFI. The government can share more investment risks with the market while relying on market assessments on the feasibility of project credit. Second, the infrastructure provider will strive to build a greater credit feasibility of their investment, because its incentives to rely on primarily on market finance with increasing the government only provide additional support. Third, while political interference in credit decisions is difficult to be removed completely, less in the credit increase system, which has a clearer separation between public and private actors.

From hardware to service: Bankable infrastructure company

However, Leveraging Finance, only one part of the equation. The other part is expenses – the focus on ‘how’ finance is spent. Traditionally, the emphasis has been on hardware, such as expanding road networks; invest in pipes and cables for water and electricity; Build ports and airports; and expand general housing. Because these examples suggest, ensuring adequate capital expenditure for traditional hardware is the focus of infrastructure programs.