ADB clears $700 mn loan for infrastructure development

Govt estimates that $1 trillion is needed in infrastructure investment to achieve economic growth of 8.4% under its current five-year development plan

The Asian Development Bank (ADB) has approved $700 million in loans to support the Indian government's efforts to accelerate investment in infrastructure which the country requires to ensure strong economic growth.

"Poor infrastructure is one of the biggest drags on growth and development in India and there is a large investment funding gap of about $113 billion during the 12th Five-Year Plan for 2012-2017," ADB said in a statement.

This assistance to India's Infrastructure Finance Company Ltd (IIFCL) will allow it to lead the market evolution for infrastructure financing and will spur greater involvement from the private sector, said Cheolsu Kim, Lead Finance Specialist in ADB's South Asia Department.

The government estimates that $1 trillion is needed in infrastructure investment to achieve economic growth of 8.4% under its current five-year development plan, and expects nearly half of that to be financed by the private sector.

However, banks which have been the key source of infrastructure finance, are increasingly unable to provide funds as they are fast approaching exposure limits to key infrastructure companies, the Manila-based multi-lateral funding agency said.

ADB's funds - provided through two loans under a multi tranche financing facility - will be used to provide direct loans for project developers and to replace bank loans, freeing up banks to provide credit in other greenfield projects, it added.

Currently, 31 road, railway, airport, urban infrastructure and energy projects, including in renewable energy, are in the pipeline to receive support from ADB.

Established in 2006, IIFCL is wholly owned by the government and its borrowing programme is fully backed by a government guarantee.