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Monday, 14 Nov 2011
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 A compelling case for sustaining
Yes Bank Ltd_ProjectsToday

Vinod Bahety_YesBank_ProjectsToday

Vinod Bahety,

Senior Director
Corporate Finance (Infrastructure Banking Group),


Inadequate infrastructure poses a significant constraint on India's growth potential. India's poor infrastructure is in marked contrast to rest of Asia - there are congested roads / airports, long & frequent power cuts and strained capacity at ports. India's ability to make progress in building infrastructure is critical for it to sustain high growth rates. India would need to more than double its electricity capacity, increase its length of roads by half, and add substantially to its railway, irrigation, ports and airports to keep pace with economic growth.


To meet this growing demand, Government of India through the Eleventh Five Year Plan planned to increase the gross capital formation in Infrastructure from the 5% of GDP at the end of Tenth Plan to a more sustainable level of 9 to 10% by the end of Eleventh plan such that Indian infrastructure is able to match the more advanced Asian economies. Now, the Government plans to achieve a trillion dollar investment in Infrastructure through the Twelfth Five Year Plan. Traditionally, Infrastructure has been funded through Public Investment. However, achieving the investment targeted in the Twelfth Plan presents many distinct challenges. These relate not only to scarcity of financial resources but also lack of resources within the Government to implement these ambitious programs. The strategy of the Government, therefore, relies significantly on promoting investment through combination of Public Investment and Private Participation. A rise in private investments during the Twelfth Plan period is, in fact, expected to compensate for a shortfall in public sector investments. The Twelfth Five Year plan (FY 2013-17) envisages an investment of USD 500 billion from the private sector, which is 50% of the total projected investment of USD 1 trillion.



"Vinod Bahety," is Senior Director - Corporate Finance (Infrastructure Banking Group) in YES BANK Ltd, India's new age private sector Bank with special focus on financing of infrastructure projects. The views expressed in this article are personal.

To attract private investments, the sector needs to offer returns which would keep the interest of investors alive. Classically, Infrastructure projects are capital intensive with long gestation period that have direct impact on the investor's return. The inadvertent delays in completion of the projects do not help the investors cause either. Given the international experience, the private investors are also concerned about risks stemming from lack of clarity of government policy, the absence of a credible regulatory system, and the possibility of arbitrary political action. Thus aim of Indian Government policy in such situations should be to reduce perceived risks by introducing greater clarity in policy and providing an environment that reassures investors. Such environment would encourage a larger number of private investors to enter the field.


While majority of the infrastructure development in the country is funded by Scheduled Commercial Banks, there is a growing asset-liability mismatch and sector exposure issues which would restrain sustained banks financing to the sector. Although India has high rate of savings of 34%, we are still starved of long term financing for infrastructure projects. The savings need to be channelized for the development of infrastructure sector and one of the platforms supporting this is a strong corporate debt market. The Honorable Finance Minister, in his Budget for FY 2012 has already announced setting up Infrastructure Debt Fund and has also relaxed norms for channelizing funds through the Corporate Bond Market.



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