The Asian Development Bank (ADB) has proposed granting the Indian government a $1.2 billion loan to help the country facilitate its infrastructure development, in particular public-private partnerships (PPP), according to an ADB report.
The multitranche financing project aims to support the Indian government’s “renewed effort in accelerating infrastructure growth through increased private sector investment”. According to the report, the sovereign loan should act as a catalyst for such investment in infrastructure, in particular through the PPP model.
The initiative, which has yet to be approved by the ADB, looks to show support for India’s renewed commitment to infrastructure development. The country’s required infrastructure investment for the 2007-2012 Five-Year Plan was estimated at $514 billion, with 30 percent of that having to come from the private sector.
Unfortunately, India’s infrastructure investment was unable to meet that target, with only 20 to 25 percent of the money coming from private partners, according to Cheolsu Kim, principal financial sector specialist in the ADB's South Asia department. This has led to a rather depressing condition in India’s infrastructure investment, with many projects delayed and others struggling to get positive returns, according to Raja Parthasarathy, private equity partner at infrastructure fund manager IDFC.
However, Kim insists that infrastructure investment in India is still commercially viable, and the ADB has granted the country two loans of $500 million and $700 million since 2006 on that premise. With the government of India targeting GDP growth rate of 8.4 percent, its estimated infrastructure investment need is $1 trillion for the next five years – and around 47 percent of that will have to come from the private sector, according to the ADB summary.
Although the new $1.2 billion loan seems to be only a drop in the ocean, Kim’s hope is that the fund mobilisation capacity of the loan – which will be granted to the India Infrastructure Financing Company – will be more than 12 times.
“This initiative’s purpose is to accelerate investment [in infrastructure] – if infrastructure investment is sluggish, it will have a negative impact on the whole country’s GDP,” Kim said. He pointed out that in India, there has been a direct correlation between infrastructure investment and GDP growth, so the need to maintain investment in the sector is greater.
The loan will also come with some policy requirements for India to implement regarding its PPP regulatory framework. Kim told Infrastructure Investor that the ADB is still in discussions with the Indian government over exactly what those requirements will be. The proposal is set to be reviewed by the ADB for approval in November, Kim added.