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ANALYSIS - Infrastructure hopes may hit funding roadblock

Fri Jun 26, 2009 5:01pm IST
 
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By Jasudha Kirpalani

MUMBAI (Reuters) - India's hopes of launching much-needed road, port and power projects may be deflated by a funding squeeze as government finances are constrained, long-term domestic money is scarce and battered overseas investors and lenders watch from the sidelines.

If starved of the spending, India's overburdened infrastructure is bound to hinder the country's efforts to return to an economic growth rate of 9 percent a year and hurt its goal to become the fastest growing major economy in the world in 2010.

Asia's third-biggest economy needs $500 billion for its infrastructure over the five years to 2012, the government has estimated. About 30 percent of that is expected from private funds, as the government tries to contain a widening fiscal deficit.

For a graphic on sector-wise planned investment, click here

Developers tend to raise equity financing through founders or overseas investors and borrow funds for short to medium terms from financial institutions. But money flow is tight these days.

"We have to seek alternative ways to raise capital," said Jai Mavani, head of infrastructure at consultancy KPMG, adding that the big pool of domestic savings must be tapped. "We have some of the highest savings rates in the world," Mavani said.  Continued...

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