Innovative financing: the case of India Infrastructure Finance Company India is a country that requires large investment in infrastructure for the acceleration of growth, which is aim at reducing poverty while improving the quality of life. Due to fiscal limitations, this leaves little room for the expansion of public investment at the scale required. Because of this, there has been the emergence of public-private partnership (PPP) as the principle vehicle for the attraction of private investment in infrastructure. Nevertheless, most of the private capital needed for PPP projects must be raised from local financial institutions, which do not have the ability or capacity of providing long-tenure debt for project with a long payback period. Through the setting up of government-owned financial institutions, with the mandate of providing about 30 percent of the debt of project, there will be a mobilization of a large volume of long-term debt. This leaves the remaining 70 percent to befunded by the banking system. Infrastructure deficit Before India’s Infrastructure Finance Company was regarded as inefficient and inadequate. The power sector suffered a peaking deficit of 14% with an energy shortage of 11%. The National Highway network has four standard lanes, which comprises of the 17% of the total length of 70,548km. Two-lane comprises of 53% while the remaining 17% are made of a singlelane. For several decades prior to the 1990s, India experienced a low and stable growth rate of three to four percent per annum, famously termed as the "Hindu rate of growth." Following the economic liberalization coupled with dismantling of the licensing regime in the early 1990s, the economy recorded a high trajectory of growth ranging between seven to nine per cent throughout the decade of 1990. With this acceleration in growth rate, the pressures on a deficient infrastructure increased manifold, especially since the growth story of the 1990s was largely led by the manufacturing and services sectors while infrastructure development proceeded at a slower pace. As a result, infrastructure came to be regarded as a major constraint in sustaining the growth process and in attracting investment or doing business in India.
In the past, infrastructure projects were typically financed from the limited resources of the public sector, which was characterized by inadequate capacity addition and poor quality of service. Following the economic liberalization of the 1990s, private investment began to flow in infrastructure with mobile telephony taking the lead. In power generation, private investment was initially aided by various forms of government guarantees, which were soon discarded as they came to be viewed as an unsustainable form of support for private sector projects. Other sectors, such as highways, railways, airports and ports witnessed piecemeal attempts at reforms, which led to marginal outcomes.