Putting India on the Road: Infrastructure Banking

By: Candice Hubbard

The second largest population in the world with 40% of the population between the age of 25 and 54, India is fast emerging as a global economic power. However India was not always this way. A continent of three million square kilometres and with a vastly diverse culture of modern bustling cities and poor farms, India needs to improve its Infrastructure if it wants to become the economic power the world thinks it will become. The recently elected Indian Prime Minister, Narendra Modi, also made an electoral commitment to improving India’s infrastructure. But to develop infrastructure, the companies that build it need money.

Getting the Finance

This is where Infrastructure Banking comes in. This type of banking is optimised to proved serious investment into the development of India’s infrastructure. These types of banks take their money from the Reserve and lend it to infrastructure developers. This way Infrastructure projects can be properly funded but are essentially underwritten by the Government so India’s interests are kept at the heart of the project. For example, without financial aid, the Yamuna Expressway which links Noida and Agra cost a wapping $US2.1 billion.

Having the Finance

The Reserve Bank Of India pot is not bottomless so extra money needs to come from somewhere. This is where the IDFC comes in, the Infrastructure Development Finance Group. This Infrastructure finance group operates as a non-banking-financial-company which means it is able to meet the loans and underwriting needs to finance construction firms. IDFC’s operate as a non banking financial group because they are protected by banking regulations but because they do not deal directly with the public they do not require a banking licence.

Why Should We Care?

A recent report in ‘The Times of India’ states that India needs $1trillion in investment if it is going to upgrade and improve the countries infrastructure. India has called for a lot of foreign investment to foot this bill, a forward thinking goal because once infrastructure has been improved to a Western standard, India will probably try to bring foreign money into the Indian economy through foreign business relocation to India. This sort of scheme, which will not only seek money from foreign governments but private investors too is open to corruption and exploitation, Infrastructure finance groups and infrastructure banking are by far the safest way to keep any money invested into infrastructure development moving in the direction it needs to go, into the project and not the back pocket of an unscrupulous investor. This will ensure that current projects such as the Delhi Mumbai Industrial corridor will receive all the funding it requires and help move India forward.

The Delhi Mumbai Industrial Corridor

It is estimated to cost US$166 billion, it will link six states with industrialised zones, road, rail, water and air infrastructure as well as an estimated employment forecast of 3 million people. This massive production and manufacturing operation hopes to quadruple exports from the region in five years.

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Candice Hubbard is an investment banker, blogger and member of a European Infrastructure finance group. She regularly blogs about the pros and cons of infrastructure development in developing countries, through programmes like Infrastructure Banking.

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