India is set to finalize a comprehensive framework for public and private infrastructure financing by September 2023, according to sources familiar with the matter. A panel headed by Bibek Debroy, chairman of the Prime Minister’s Economic Advisory Council (PM-EAC), is leading this initiative. The panel, formed in 2023 by the Ministry of Finance, has conducted extensive consultations with stakeholders and is now finalizing its recommendations.
The framework aims to address the challenges of financing large-scale infrastructure projects, particularly those involving private sector participation. Long gestation periods and legal complexities related to land acquisition often pose significant hurdles. The panel is examining various aspects of infrastructure financing, including the optimal approach for public and private funding models in sectors like roads, railways, and ports.
Madan Sabnavis, chief economist at Bank of Baroda, highlights the need for innovative financing mechanisms for private sector infrastructure projects, given the limitations of traditional bank lending for long-term commitments. He advocates for the involvement of specialized financial institutions and the development of a robust corporate bond market to bridge the gap.
The government’s commitment to infrastructure development is evident in the budget allocation for 2024-25, which earmarks 11.11 trillion rupees (approximately $135 billion) for the sector. Finance Minister Nirmala Sitharaman has underscored the government’s intention to adopt a market-based financing framework and promote viability gap funding to encourage private sector participation. The government also plans to provide long-term interest-free loans to states for infrastructure development.
While infrastructure is recognized as a crucial pillar of the Indian economy, the country currently lacks a uniform legal definition for the sector. Past committees, including the Rakesh Mohan Committee (1996) and the Rangarajan Commission (2001), have attempted to classify infrastructure sectors and activities. The Debroy committee’s framework is expected to provide a clearer and more comprehensive approach to defining and financing infrastructure in India, paving the way for sustained growth and development.
