{"id":4141,"date":"2021-10-13T00:11:11","date_gmt":"2021-10-12T18:41:11","guid":{"rendered":"https:\/\/ijpiel.com\/?p=4141"},"modified":"2021-10-13T00:12:32","modified_gmt":"2021-10-12T18:42:32","slug":"debt-financing-of-infrastructure-projects","status":"publish","type":"post","link":"https:\/\/ijpiel.com\/index.php\/2021\/10\/13\/debt-financing-of-infrastructure-projects\/","title":{"rendered":"Debt Financing of Infrastructure Projects"},"content":{"rendered":"

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Abstract<\/strong><\/span><\/p>\n

“Infrastructure projects remain a major source of India\u2019s growth and this can be seen by the measures taken, both by the Government and the Reserve Bank of India, in trying to prioritise the sector and increase more investment in this area. However, debt financing has been one of the major problems for this sector, where projects are often left in a precarious situation due to high-stress assets and numerous risks. This article aims to analyse the various reasons for debt financing problems in the infrastructure sector, along with trying to understand the measures taken by the Government and RBI to handle the same. Further, the article tries to provide suggestions to encourage long term financing in the sector.”<\/em><\/span><\/p>\n

\u201cInfrastructure can deliver major benefits in promoting economic growth, poverty alleviation and environmental sustainability, but only when it provides services that respond to effective demand and does so efficiently.<\/em>\u201d\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 –<\/span>World Bank<\/a><\/span><\/p>\n

Similar to many other countries, infrastructure development remains a major aspect of India\u2019s growth strategy. Today, banks dominate the financial system of India, and the Non-Banking Financial Companies (NBFC) further play a part in the infrastructure financing. There exist NBFCs which specialise in infrastructure financing, along with some other more specific NBFCs present in the government sector. A trend of higher growth rates has been seen in the flow of bank finance in the infrastructure sector. This can be<\/span> seen<\/a> in the increase in outstanding bank credit to the infrastructure sector from 95 billion in March 2001, to 9,853 billion in March 2016, having 39.31% as the compound annual growth rate (CAGR) over the course of the last 15 years. The same has been captured in Chart 1 below:\u00a0<\/span><\/span><\/p>\n

However, there were consequences to this phenomenal growth, like high stressed assets. There are a few economic characteristics that are used to differentiate between infrastructure assets and other asset clauses. These differences further make it difficult to match investment demand with financing supply. Some of these differences include:<\/span><\/p>\n