1. Articles
  2. Finance

Infrastructure Financing: Opportunities And Challenges

Posted in Finance Articles, Total Reads: 4963 , Published on December 26, 2011

Among other things infrastructure development of a nation involves building of new roads, dams, bridges, powerhouses, railways, ports, airports and even network industry such as telecom. In Union budget 2011-2012 Rs. 214000 crore have been assigned for infrastructure development. Total infrastructure investments have been estimated to be $488 billion in the 11th Five Year plan. According to planning commission this value will rise to $1025 billion in 12th Five Year plan. 50% of this amount needs to be invested by private firms. This is so because government do not have appropriate funds to meet this demand. Moreover the amount that banks lend is on short term basis while infrastructure financing requires long term investments.

Infrastructure Financing

In the words of Ratan Tata:

With US bringing in advanced technology and expertise in infrastructure financing and India poised for major development, both sides should work together towards developing infrastructure projects”.

Infrastructure Financing Sources:

According to Reliance Industries chairman Mukesh Ambani this sector requires US $500 billion investment over next five years. This creates tremendous opportunities for both private and foreign investors. To attract investment from private firms the Indian government is undertaking several measures like:

  • PPP- Public Private Partnership- In such partnerships the projects are financed both by government and private firms or just the private firms.
  • SPV’s- Special Purpose Vehicles- SPV’s like IIFC, India Infrastructure Finance Corporation, have been setup to facilitate long term debts to investors.
  • Providing revenue subsidies (Tax breaks)

Investment is also possible through overseas funding or foreign investments through FDI (Foreign Direct Investment), FII (Foreign Institutional Investor) and ECB (External Commercial Borrowings).

Opportunities and Challenges:

Following are the few sectors in which infrastructure development in our country is the need of hour:

a) Railways :

Indian railway is the largest rail network in Asia. Daily it carries almost 13 million passengers and 12.5 million tones of freight everyday. Railways are the biggest employer in our country. Expanding rail network and upgrading the existing rail network will greatly increase the income levels generated from it. Infrastructure can be improved by:

- Doubling and port connectivity

- Gauge connection

- Development of better locomotives so that there is loss/ damage during transportation

- Dedicated freight corridors between major cities

- Reconstruction of current railway stations to world class railway stations

- Introducing metros rather than traditional railways for local travel

- Better passenger amenities

- Developing better customer satisfaction by use of information technology. That involves providing up-to-date train information to passengers

- Giving private sector a chance to develop innovative, effective and new ideas for infrastructure design

b) Power sector:

To meet the ever growing challenges of economy it is important that infrastructure in power sector is developed to its full potential. Since non-renewable sources of energy like coal are depleting it is important that alternative sources of energy are used. The challenges include developing an infrastructure that can produce power using sources like solar energy, wind energy or nuclear energy. Better transmission lines need to be developed so that there is less loss during transmission of power.

c) Ports :

Ports play a crucial role in facilitating India’s international trade. Our country has a coastline of 7517 kms and 12 major ports. Developing better port infrastructure can help to promote exports, imports, real estate as well as transportation of oil. Better infrastructure will cut down transaction time and thereby its cost significantly.

d) Roads:

India has a road network of over 3.314 million kilometres. It is the third largest road network in the world. They carry 61% of freight and 85% of passenger traffic. Government is developing more and more national highways and better road development is needed. It is the most important network to connect rural and urban areas. Better roads are needed to ensure better supply chain management, on time delivery of products and services. Government is promoting PPP in this sector through various ways such as providing 100% income tax exemption for a period of 10 years, assigning contracts on BOT toll base model.

e) Airports:

Up gradation of existing airports to international standards will attract more tourism. Development of new airports and their maintenance should be handed over to private firms. More airbuses should be started to accommodated increasing demand.

f) Urban housing:

More and more people are migrating from rural to urban areas. Urban areas do not have adequate infrastructure to accommodate them. Better utilization of land available needs to be done. More feasible infrastructures need to be developed keeping in mind the scarcity of land available.

g) Telecom :

Ours is the fifth largest telecom service market in the world. Right now both public and private firms are there in this market with public sector having 43% of share market. A manifold amount of progress and development is expected in this area in next five years.

h) Storage Places:

Despite growing production of vegetables, fruits and cereals their availability is inadequate due to bottlenecks in retailing capacity. An estimated 40 per cent of the fruit and vegetable production in India goes waste due to lack of storage and transport infrastructure as shelve life of agriculture produce is low. Most of the grains produced are lost due to lack of storage or poor storage houses.

Difficulties Faced In Financing:

  • Large amounts for long period of time are required
  • Higher gestation period involved
  • Uncertainties associated in implementation of project like environmental clearance, opposition by social activates, updated technology etc.


Today many countries want to trade with India but lack of infrastructure hampers that. We can rapidly develop our economy if proper infrastructure is developed and maintained. Government should try and include as many private firms as possible to get in more innovative ideas. This in turn will ensure reduce in government’s spending and high quality infrastructure.

This article has been authored by Aakriti Gupta from Welingkar, Mumbai

If you are interested in writing articles for us, Submit Here

Share this Page on:
Facebook ShareTweetShare on Linkedin