India’s recent budget offers no panacea for the country’s infrastructure woes, but does contain policies that may stimulate new investment, says Prashanth Sabeshan of Majmudar & Partners
As India struggles to attract foreign investment, the recent budget – announced on 28 February against a backdrop of low industrial output and poor growth projections – has signalled the government’s commitment to securing investment for the infrastructure sector.
Financing strategies
The finance minister, P Chidambaram, encouraged the use of infrastructure debt funds (IDF) to provide long-term, low-cost debt for infrastructure projects. The IDFs uniquely float long-term bonds in both the domestic and international markets to channel investment into the sector. The repayment obligations are guaranteed under a tripartite agreement that is entered into by the IDF, the concessionaire and the grantor. This is a unique form of sovereign guarantee which provides a high level of comfort to international investors.
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Prashanth Sabeshan is a Bangalore-based partner at Majmudar & Partners. He acknowledges the contribution of Kritika Agarwal, an associate at the firm.
