India’s infrastructure requires “urgent” funding

India’s infrastructure funding has been in critical need of attention for years. As far back as 2007, Deutsche Bank Research identified the need based on increasing population and economic vitality. That same report, however, also identified enough political instability within the country to make potential investors nervous, slowing forward progress on private infrastructure investment.

Countries like the UK have developed a unified infrastructure plan that lays out not only an overall design plan, but funding proposals. Socialist countries like China depend on infrastructure projects as an economic driver, and so make those the focus for their future. The US has partnerships between the state and federal government if the project crosses state lines. If not, the state or local government facilitates the project.

India has traditionally provided less funding than needed for infrastructure projects. The most recent budget proposal (the 12th five-year plan) increases funding options for items like agricultural market terminals and oil and gas pipelines. It also authorises the funding of tax-free bonds to support some public sector undertakings. For example, a new irrigation and water resource finance company will be created to help with the funding of big-ticket investments such as flood control, irrigation and drought mitigation.

Still, many experts say the budget proposal doesn’t go far enough. The survey pointed out that “there is a need for introducing more innovative schemes to attract large-scale investment into infrastructure.” Changes such as allowing pension and insurance funds to invest in infrastructure debt have been proposed, but so far not acted on, even in the new budget. In almost all other free market economies, these investment options are open to pension plans and large investment schemes.

Additionally, outside investors will need assurance that the government will support their admittedly large investments and not pass future laws derailing their moves. Future budgets will also have to fund later portions of an overall investment, as no company is going to invest in the first 5,000km of a new motorway without knowing that the final section of the road will be built.

For India to continue its growth, a more unified plan will need to be put forth by the government so that both public and private sectors have reason to look to the future, and there will have to be assurances that the government will fund these projects forward to completion.