Infrastructure projects are complex, capital intensive and with long gestation period, posing multiple and unique risks to project financiers. Private investment in infrastructure in India over the past decade has not been up to the expectation, and there is a need for Public-Private Partnerships (PPPs) to play a much greater role than before. The paper analyzes the reasons for private financing not making its way into the different infrastructure segments, and examines the key constraints to private financing. It also suggests ways to mitigate these constraints for a sustained private investment in the Indian infrastructure.

Infrastructure projects are complex, capital intensive, having long gestation period and involve multiple risks to the project participants. In many countries shortage of public funds have forced the government to enter into a long-term contractual agreement for financing construction and operation of infrastructure projects. A Public-Private Partnership (PPP) can be defined as private sector financiers of construction and operation of infrastructure projects, which would have been otherwise provided by the public sector. PPP structures are typically more complex than the traditional public procurement projects, and their complexity is due to the number of parties involved and the mechanism used to share the risk.

PPP projects are characterized by non-recourse or limited-recourse financing, where lenders are repaid from only the revenues generated by the projects. The concessionaire is a special purpose vehicle in which the sponsoring entities are not responsible for the repayments of loans. These projects have a capital cost during constructions and a low operating cost afterwards, which implies that the initial financing costs are very large compared to the total cost. Further, a mix of financial and contractual arrangements amongst the multiple parties including the commercial banks, project sponsorers, domestic and international financial institutions and government agencies makes it further complex.

In recent years, efforts have been made by the Government of India to increase the private investment in infrastructure. While India's performance in increasing the investment is encouraging, about two-thirds of the investment has gone to the telecommunication sector since 2001. India realized sufficient investment in the transport sector but the investment in energy, water supply and sanitation has not yet picked up noticeably. Even at this rate India is well behind the other countries in attracting private investment. Financing gaps in infrastructure up to the year 2010-2011 have been estimated by the Planning Commission of India, and are provided in Table 1. To meet this funding gap, innovative financing models are needed to make economically essential projects commercially viable and allow active private sector participation to facilitate private sector efficiency in India's infrastructure development. The paper examines key constraints to private financing of infrastructure, fiscal barriers and deficiencies in the government policies and regulatory framework. It further suggests practical ways to attract sustained private investment in infrastructure development.

Infrastructure Journal, PPP Infrastructure Projects, Government Agencies, Commercial Banks, Telecommunication Sectors, Infrastructure Development, Capital Investment Projects, Environmental Risks, Corporate Assets, Corporate Bond Market, Financial Sectors, Insurance Companies, Infrastructure Financing.