<em>Photo: Reuters</em> 
Special 
<em>Photo: Reuters</em> High-speed bullet trains, building modern cities and expediting work on the freight and industrial corridors are some of the promises the BJP made in its 2014 Lok Sabha manifesto to revive growth and create employment in the country. It won't be any surprise, then, that the infrastructure sector will be big focus area for the Narendra Modi-led BJP government at the Centre.
"We expect the Modi government to kick-start infrastructure growth, especially power and telecommunication where a lot of investment got stuck because of policy paralysis and other issues," says V.N. Dhoot, Chairman of Videocon Group.
Dinesh Kanabar, Deputy CEO at KPMG India, agrees. "FDI flows in India took a back seat thanks to a flip flop in economic policies, clogging up of the approval process for large projects and confrontationist tax policies. The first task of the new government would be to deal with these three issues," he says.
Banking experts suggest that, apart from policy clarity, there is also a big issue of financing long-gestation infrastructure projects as there has been a gradual decimation of the development financial institutions (DFIs) over the years. ICICI and IDBI, which were once DFIs, are now banks. The banking sector, which got aggressive in the infrastructure sector, is facing asset-liability mismatches as it attracts short-term deposits while lending is for a long-term period of five to 10 years or more. Banks are saddled with high bad loans from the infrastructure sector. There are some estimates that 75 per cent of bad loans are from infrastructure," says G.N. Bajpai, a former head of the Securities and Exchange Board of India and Life Insurance Corporation.
V. Vaidyanathan, Chairman and Managing Director of Capital First, says there is no institutional framework to raise resources, particularly for the long term. "The dedicated infrastructure institution, IDFC, is also converting into a full- fledged bank," says Vaidyanathan, who is also a former executive director of the country's second-largest bank, ICICI Bank Ltd.
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Many say Modi will have to turn to India Infrastructure Finance Co. Ltd (IIFCL), which started operations in April 2006. "It's a new institution without any legacy issues. IIFCL could become the Modi's government vehicle to push infrastructure development in the country through the public-private partnership model," says the chairman of a state-run bank.
IIFCL, which is fully owned by the government, provides long-term finance to infrastructure projects especially in roads, ports, airports and power. The company sanctioned Rs 11,514 crore under direct lending last year with cumulative lending crossing Rs 50,000 crore.
But some suggest IIFCL alone cannot do much as India doesn't have long-term money, innovative financing schemes and foreign capital to finance infrastructure projects. "The government could move infrastructure into the priority sector (for banks), encourage insurance companies, which attract long-term capital, and also deepen the bond market," says Vaidyanathan.
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