The Hindu Business Line : Funding infrastructure

With global financial markets in turmoil, raising funds overseas for infrastructure investment is a challenge. Multilateral funding seems the best bet now.

The financial turbulence in global markets has queered the pitch for companies in the core sector wanting to raise capital overseas. The recent relaxation of norms for external commercial borrowings may not really help as shell-shocked overseas lenders are not that easily persuaded. Recognising this unpleasant reality, Mr Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, appears to think that the government would have to pitch in. Important as that might be, fi nding sources for the $500 billion investment envisaged through the five years of the 11th Plan remains a major challenge. At this point even the $75 billion investment expected from the private sector seems difficult. With private capital all but dried up the best bet seems to be multilateral funding.

Institutions such as the World Bank, Asian Development Bank (ADB) and the Japan Bank of International Cooperation (JBIC) have a history of funding key sector development even in the last eight years when private capital became central for industrial expansion. Last year, the ADB upped its funding commitment to $3 billion a year from 2008 to 2010 on a variety of core sectors from transport and urban renewal to power and energy. The World Bank has loaned $600 million to Tata Power’s ultra-mega thermal power project in western India. Similarly, the JBIC has been in extensive talks with the Power Ministry for participation in the hydroelectric sector on a sustained basis. Since last year there has been a shift in emphasis to projects that are carbon-emission free; so hydroelectric power and renewable energy projects are getting increasing attention from both the ADB and JBIC. But the most exciting opportunity for India to get funding and redraw the energy-environment trade-off comes from two separate yet interlinked events. One is the Indo-US nuclear deal and the other, a rethink in the World Bank and ADB about funding nuclear energy projects in place of thermal or fossil fuel sources of energy.

For New Delhi, the present financial turmoil and the prospect of recession in the West not to mention the risk aversion of domestic banks especially for lending to the core sector, need not be a setback as much as a scenario of exciting possibilities. The 11th Plan core sector targets can stay on track if flexibility is shown in redefining goals for newer sources of energy that will have the advantage of minimal carbon emissions. Both, India’s entry into the nuclear club and the new focus of multilateral agencies on non-fossil fuel options, offer the country the opportunity to provide a better infrastructure and in the bargain also galvanise investments once more across the economy.

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