Study suggests govt to encourage new funding sources

According to an industry study, there is an need to
encourage funding sources other than bank credit (like insurance) and introduction of new instruments to accelerate flow of funding to infrastructure sector.

The study, conducted jointly by industry body ASSOCHAM and and consulting firm Deloitte points out that the change in BASEL III requirements and too much concentration of risk on the balance sheets of PSU banks may prompt them to reduce exposure to infrastructure funding in the near term.

This calls for the need to explore other funding sources like insurance, the study said.

There is a need to consider introducing innovative financial instruments for risk mitigation and more closely align the nature of infrastructure development with funding sources to encourage private sector investment in infrastructure, the study says.

The Planning Commission expects an investment of Rs 51 lakh crore in Twelfth Five Year plan period (2012-17). About 53 per cent of this is expected to be funded through budgetary support and rest will have to come from private sector funding, the study said.

In this tight fiscal environment, private sector participation is seen as a means to bridge the funding gap. This is currently hampered by the significant challenges and risks faced by private sector.

The study suggests government to play a pivotal complementary role of a facilitator, enabler and regulator to allay the apprehensions of the private sector.