Bank monitoring of infra projects should be tightened: Study

Banks had to keep track of the asset-liability mismatches arising on account of infrastructure financing, while appraisal and monitoring mechanisms for financed projects needed to be tightened, according to a Reserve Bank of India (RBI) staff study.

The study also called for imposition of appropriate user charges to cover the cost of providing infrastructure services.

Infrastructure is seen as a major bottleneck to India’s economic growth and is expected to require massive investment in coming years. The 11th Plan pegs the expenditure requirement in infrastructure at $ 514.04 billion (Rs 23,64,400 crore) in order to be able to maintain a gross domestic product (GDP) growth rate of 9 per cent annually.

China invests 20 per cent of its GDP in infrastructure development, while India invests just six per cent.

The study vouched for the public-private partnership (PPP) model for infrastructure financing saying the success of such models would require facilitating factors, such as, bureaucratic efficiency, adequacy of returns, efficient market mechanisms and information access.

“PPPs offer significant advantages in terms of attracting private capital to create public infrastructure and enhance efficiency in the provision of services to users,” the study said.

However, the success of such a route rests on the ability of the public authorities to provide enabling arrangements to not only attract private investment but also to be able to ensure safeguarding public interest, the paper said.

According to the paper, it is appropriate to impose user charges in order to recover the cost of providing these services directly from the users rather than from the country as a whole. “The infrastructure project benefits do not percolate uniformly among the masses in the country… If users are charged a fair price, the project acquires a purely commercial character with the government playing the role only of a facilitator,” the paper said.

Since users are likely to pay for the services that they need the most, private participation and risk-return management has the added benefit since the scarce resources are automatically directed towards the areas where the need is greatest, adds the paper.

The study also called for finding innovative means to channelise resources of post-office deposits and pension funds into infrastructure financing; and introducing land reforms for paving way for the success of many projects.