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Funding holes plague infra push

The government is pinning its hopes on large highway, port and urban infrastructure projects to push growth, but firms face difficulties in execution.

business Updated: Jan 04, 2009 20:46 IST

The government is pinning its hopes on large highway, port and urban infrastructure projects to push growth, but firms face difficulties in execution. Foreign funds are not easy to find in current conditions, and domestic banks are wary of lending, and have a bias towards higher rates, say experts and officials.

On Friday, the government eased overseas borrowing norms for all companies by removing interest rate ceiling restrictions and allowed non-banking financial companies engaged in infrastructure financing to raise dollar-denominated loans from foreign banks.

It also allowed the India Infrastructure Finance Company Limited (IIIFCL) to raise Rs 30,000 crore through tax -free bonds.

This is in addition to the Rs 10,000 crore it was allowed to raise last month But all that may not be enough.

“Ongoing and future projects together required a Rs.100,000 crore package. The first and the second stimulus packages have addressed only Rs 40,000 crore,” said Vinayak Chatterjee, chairman of infrastructure consulting firm Feedback Ventures.

Currently, about 300 projects worth an estimated Rs 1,35,876 crore are in progress. Of these, about 86 are road projects worth over Rs 47,000 crore.

A top government official, who did not wish to be identified, said banks were reluctant to fund infrastructure and were also reneging on sanctioned or agreed terms, especially on interest rates.

“The pricing for a reasonably well structured infrastructure project has moved up by approximately 3 percentage points in the current year. This is creating a severe strain on the projects costs and projected cash flows,” the official said.

Besides, infrastructure projects relying on equity deals are also facing uncertainties, in addition to procedural issues.

“It is still not clear how exactly IIFCL will be deploying the funds,” Chatterjee said, adding the stimulus package left out ongoing projects.