The Hindu Business Line : Funding architecture for infrastructure

India needs something like $350 billion over the next five years to create the infrastructure necessary to sustain economic growth and satisfy consumer needs. According to the ebullient Vinayak Chatterji, chairman of the CII's Infrastructure Council, of this huge amount nearly 70 per cent has to come from the state; 20 per cent from the private sector (foreign and domestic) and 10 per cent from overseas development assistance, such as the World Bank and the ADB.

These figures are based on his analysis of the World Bank data of investment flows in developing countries over the past decade or so. As for the future, the ratio may change depending upon what actually happens. And that must happen, if we have to achieve the target, otherwise we won't be able to grow at 8-9 per cent.

In the last fiscal year (March 2006) the infrastructure investment was $28.4 billion or about 3.6 per cent of GDP. It is not known how much of this came from the private sector and nor are any data available, but it is close to the Chatterji diagnostic.

Considering the budgetary limitations of investing public resources, we need more private flows and reforms in financial sector so that the infrastructure investment reaches at least 8 per cent of GDP.

Creating modern airports

In terms of private investment, there are splendid examples in the case of the New Delhi and Mumbai airports, with private sector operators rebuilding them to create modern airports in partnership with the government.

In this case a constant revenue will be assured to the government under the Public Private Partnership (PPP) model, and the airports will revert to the state after 30 years. When the bids were invited, there was some opposition, but wisdom prevailed soon; we may see first-class airports in the two megapolis, as also in Kolkata and Chennai.

Minimum leakage

Already the success of the PPPs model is visible in the road sector. Done on transparent contracts, the PPPs have offered predictability to the private investors.

The architecture of these model concession agreements has ensured minimum leakage.

(The author is Secretary-General, CUTS International, and can be contacted at psm@cuts.org.)

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