FM sees 30% deficit in infra funding in 12th Plan

The government has estimated that it may face a shortfall of 30 per cent in funding the infrastructure requirement of Rs 41 lakh crore in the Twelfth Five-Year Plan (2012-17), and has called for regulatory changes to channelise funds from insurance and foreign capital to bridge the deficit.

“While I am hopeful of meeting the total target for 11th Plan investment in infrastructure, as per our preliminary estimates, there may be a substantial gap of up to 30 per cent in financing the even more ambitious target of Rs 41 lakh crore of investment in infrastructure for the 12th Plan period,” Finance Minister Pranab Mukherjee told a parliamentary consultative committee on Tuesday.

The deficit may be seen due to lack of long-term funds for meeting the needs of infrastructure projects. The fundamental constraint in infrastructure financing relates to the limits on banks’ lending to the infrastructure sector in view of their asset-liability mismatch and concentration risk concerns.

“Increasingly, therefore, we would need to rely upon intermediating greater amounts of insurance and pension funds into infrastructure, subject, of course, to the overriding concern of safeguarding the interests of the policyholders and pensioners,” Mukherjee added. He emphasised the need to strengthen the corporate bond market and develop credit enhancement mechanisms to enable infrastructure projects, typically non-recourse special purpose vehicles, to access these funds.

He also highlighted the need for suitable regulatory changes for channelising greater amounts of foreign capital, especially debt capital, into Indian infrastructure to bridge the large financing gap.