Financing Infrastructural Development – Issues and Challenges in India

Driving infrastructure development, notably mobilizing financial resources for infrastructure projects, has been a challenging task in many countries. Inspite of an overwhelming demand for investment in infrastructure, its provision has largely remained within the purview of the public sector because of such inherent characteristics as non-excludability, externality, huge capital investment, long gestation period, etc. There is little doubt that the investment need is substantially higher than there is provision for in the Government's budgetary allocation. The alternatives sought were in the form of funds available from the domestic capital market, foreign funds and private participation. The use of domestic market funds was restricted due to the underdeveloped domestic capital market, which does not provide funds for the long run required for infrastructure projects. This paper deals with emerging issues in the practice of funding infrastructure development in India and steps to be taken by the government to increase capital flows into infrastructural sector.