Issues in Infrastructure Financing

♤ Fiscal Burden - almost half of the total investment in the infrastructure sector is done by the Government through budget allocations. But Government funds have competing demands, such as, education, health, employment generation, among others.

♤ Asset-Liability Mismatch of Commercial Banks - commercial banking sector’s ability

to extend long-term loans to the infrastructure sector is limited.

♤ Investment Obligations of Insurance and Pension Funds - insurance and pension funds are constrained by their obligation to invest a substantial portion of their funds in Government securities.

♤ Need for an Efficient and Vibrant Corporate Bond Market - the corporate bond market is still a long way to go in providing adequate financing to the infrastructure sector in India.

♤ Insufficiency of User Charges - a large part of the infrastructure sector in India especially irrigation, water supply, urban sanitation, and state road transportis not amenable to commercialization for various reasons. Due to this, the Government is not in a position to levy sufficient user charges on these services.

♤ Legal and Procedural Issues – issues relating to land acquisition and environmental clearances add uncertainty which affects the risk appetite of investors as well as banks.