2.1. Financing of Infrastructure: Need, Issue and Challenges

The relationship between infrastructure development and economic growth is well established in the literature. While infrastructure development facilitates economic growth; economic growth increases demand for more infrastructure. Thus, development of adequate and quality infrastructure is a necessary if not sufficient condition to maintain growth momentum in any economy. However, infrastructure development is an arduous job for any country as it involves huge investments, long gestation periods, procedural delays and returns spread over a long

period of time. These unique features of infrastructure development raise some issues which are specific to the financing of infrastructure.

To revert back to the high economic growth rate (8-9%), the rate of investment has to increase substantially (We need 1 Trillion Dollars of investment in infrastructure in next two to three years- National Investment and Infrastructure Fund). This is evidenced by the decline of growth rate and investment rate in last couple of years. Let us look at the broad pattern of financing of infrastructure in our country before highlighting some of the issues involved in it.