Saturday, December 3, 2011

INDIAN INFRASTRUCTURE ...FINANCING MODELS????

For many years India’s lack of infrastructure has been identified as one of the major constraints on sustaining a high growth rate. India is reeling under the low GDP growth due to improper infrastructure. For example if one Glass Factory plans to supply glasses by container traveling via road to a buyer who is located in an village then the buyer will get broken glasses at his end. Since the roads connecting the inner part of rural areas are still underdeveloped. Road infrastructure is so poor that we find medical facility in rural areas are improper and inadequate.

Since emergency supply remains unreachable due to lack of proper roads. Lack of infrastructure has also resulted many operation s to be localized in some particular states. This is partiality was gained since from time to time majority of Parliament members representing from those particular states. This has resulted too much dependency on particular state resulting imbalances from financial development to society development and finally ending up with ecological development.

But what takes to develop the infrastructure of India. Does its requires new generation of young bloods for reforms or policies for development. It needs land and capital the two prime wheels of any economic development. We all know that the 117-year-old Land Acquisition Bill, 1894 is still ruling India despite of its independence achieved over 65 years. Until the bill gets changed Indian roads and its infrastructure will not grow. But, what about capital? Do India have enough funds to finance its infra development.

One another reason for the gap is that private-sector participation has been lower than expected. All infrastructure projects have an element of risk, but in India structural impediments create additional dangers. The single largest factor in project delays is the difficulty in acquiring land along with regulatory delay has increased the burden of working capital financing and its cost of project. Banks has always played a critical role to Indian infrastructure but with the recent slow down in project execution has deterred them from investment to the sector. The below chart depicts the active participation of banks to infrastructure segment

This has also widened the gap of funding for infrastructure projects. The government can take and design many policies to stimulate capital flows into infrastructure like allowing banks to raise resources through long term bonds exempt from statutory requirements and easing norms for insurance companies and pension funds to investment in infra projects.

 
Allowing debt funds to buy loans from the banks for projects that have completed construction and entered into commercial operation. To protect investors from default, the funds would be backed by a government guarantee. Apart from this financiers also need to structure their business models to build high return business. NBFC should be allowed to partner up with banks for develop various financial models which will lead to provide financing infrastructure projects in India. Global banks with strong and healthy condition can develop a synergy with Indian banks to provide financing by developing new models for investment. To date debt financing for infrastructure projects has largely been confined to commercial banks. But with the increase in demand of infrastructure projects and opening upon the gates of investments banks became costly source of funding of the projects we need to come up with new models of financing.The below graph is related to ECBs/FCCBs/NBFC and other forms of capital contribution to infrastructure.

This will invite many other investors to invest. Foreign investors can diversify their risk by holding a portfolio of projects. The recent participation of FII’s investment in bond market, Credit Default Swaps & derivatives has been very impressive. The side graph depicts the growth and participation of FII investment in securities.

Where as domestic insurers and pension funds which have stayed away from infrastructure can take advantage of projects’ steady cash flows without being exposed to construction risk or default risk. Life insurance companies, which have access to long term money and should invest in this pace, are quite passive on it as they are averse to taking on project risk.

At the same time this will allow the banks to free up their balance-sheets to lend to new projects. Directly the government can allow banks to provide refinance support to lending by commercial banks by increasing the credit enhancement for infrastructure instruments or through direct investment in hybrid or equity issue by infrastructure companies through an Asset Management Company.

Utilization of the foreign reserve is an excellent way to finance the infrastructure growth of India. Take-out financing model this entails a bank transferring its long-term loans for infrastructure projects to term lending institutions after funding projects in the initial years. The government has also approved a take out financing scheme by the India infrastructure Finance Company (IIFCL) to encourage banks to lend more to the sector. The scheme aims to address the asset-liability mismatches faced by banks in financing long-term projects and because some banks were close to hitting the limit of group and single-entity exposure. The below graphs represents India foreign exchange reserves.

Lending institution should play a pivotal role development infrastructure project financing by offering advisory services. They should play a proactive role in terms of providing strategic analysis, evaluation and financial modeling of projects, tax planning making the project commercially viable.

2 comments:

hhh

Thank You

The given information is very effective
i will keep updated with the same

industrial automation

hhh

Thank You

The given information is very effective
i will keep updated with the same

space for rent

  © Blogger template 'Minimalist H' by Ourblogtemplates.com 2008

Back to TOP