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Infra plans hit funds roadblock

India has emerged as the second most preferred destination for FDI inflows but it would find difficult to fund its infrastructure projects, a report released by a UN body said.

business Updated: Sep 24, 2008 22:25 IST
HT Correspondent

India has emerged as the second most preferred destination for foreign direct investment (FDI) inflows but it would find difficult to fund its infrastructure projects, according to latest report released by a United Nations (UN) body said on Wednesday.

India will require an estimated $500 billion to fund its infrastructure projects between 2001-2010. The United Nations Conference on Trade and Development’s World Investment Report 2008 cautioned that India would find it difficult to fund these projects due to lack of funds.

The annual financing gap during 2001-2010 is estimated at close to $14 billion, the report said, adding that for the entire period it worked out to be about $140 billion.

The government on Monday announced a five-fold increase in overseas borrowing limits for resource starved infrastructure companies to fund domestic projects.

Under the new norms, infrastructure companies can borrow up to $500 million from overseas markets for spending in the home country.

In the last two years, there has been a major rise in overseas borrowings largely because of growing gap between domestic and international interest rates.

At end-March 2008, outstanding such borrowings stood at $ 62 billion — up from the previous year’s $41 billion.

Industry has been hemmed by a hard domestic interest rate regime after Reserve Bank of India raised key rates to suck out liquidity to tame a runaway inflation rate that has hovered above a worrisome 12 per cent in recent weeks.

The future investment needs on infrastructure development has far exceed the amounts at present planned by governments, the private sector and other stakeholders, the report said.