Thread by @BiIndia

#Finance | India hopes that more money will bridge the #infrastructure gap⁠ but many believe that may not be enough

businessinsider.in/finance/banks/…

By @pabsgill

@pabsgill The Indian government is on the cusp of setting up a new bank that will raise money from big pension funds, insurance funds, sovereign funds and foreign funds to invest in long-term #infrastructure projects.

@pabsgill Indeed, India’s #infrastructure deficit is mammoth and it needs money. However, there is a lot else that impedes such projects in India.

@pabsgill According to global research firm Phillip Capital, lack of funds is why 17% of projects within the manufacturing industry in India have stalled.

There haven’t been any new major projects announced either in the last nine months.

#Infrastructure

@pabsgill The Budget provides capital infusion of ₹20,000 crore and an initial grant of ₹5,000 crore. According tothe FM, the government expends the DFI to raise up to ₹5 lakh crore in the next three years because it can access the market & capitalise on funds that are not available.

@pabsgill “The bank led #infrastructure financing strategy from 2003 to 2008 has resulted in an NPA mess,” Varun Malhotra, director and founder of Edge Institute of Financial Services (EIFS) — a financial education institution — told Business Insider.

@pabsgill According to Abhishek Saxena — the co-founder and partner of Phoenix Legal — the DFI will also need to have adequate risk mitigation strategies in place and recruit human capital with the right set of skills to be able to identify good projects for lending.

#Infrastructure

@pabsgill The resounding consensus in India’s capital markets these days ⁠— echoed by none other than the Prime Minister himself⁠ — is that the government has no business being in business. Therefore, the government has put its stake in many state-owned companies up for sale.

@pabsgill This is not the first time that India has done this experiment. The Industrial Finance Corporation of India(IFCI), ICICI and the Industrial Development Bank of India (IDBI) were established to provide long-term financing between 1948 to 1964.

@pabsgill When the above argument found enough takers, the Reserve Bank of India’s (#RBI) ‘support’ offered to these banks — built to develop India’s infrastructure — was withdrawn in the 90s. The banks had to face market-based rates, leading to their inevitable downfall.

@pabsgill “The best answer to this #infrastructure issue will be a vibrant debt market where long-term bonds can be issued. In the absence of such a bond market, the idea of setting up a DFI for funding infrastructure projects of national importance is not a bad idea,” Malhotra explained.