The growth of the infrastructure sector in India has been relatively slow compared to that of the industrial and manufacturing sectors. Energy shortage, inadequate transportation network, and insufficient water supply system have caused a bottleneck in the country's economic growth. The Build-Operate-Transfer (BOT) scheme is now becoming one of the prevailing ways for infrastructure development in India to meet the needs of India's future economic growth and development. There are tremendous opportunities for foreign investors in this field. However, undertaking infrastructure business in India involves many risks and problems that are mainly due to differences in legal systems, market conditions and culture. It is crucial for foreign investors to identify and manage the critical risks associated with investments in India's BOT infrastructure projects. The main purpose of this paper is to investigate the critical risks associated with BOT projects in India. Based on a survey, the following critical risks, in descending order of criticality, are identified: delay in approval, change in law, cost overrun, dispatch constraint, land acquisition and compensation, enforceability of contracts, construction schedule, financial closing, tariff adjustment and environmental risk. The measures for mitigating each of these risks are also discussed. Finally, a risk management framework for India's BOT infrastructure projects is developed.

India's economy has shown remarkable growth over the past several years and many foreign economists predict a healthy growth in the near future. A private international forecasting firm predicts that India's GDP will grow at an average annual rate of about 8% between 2010 and 2015.

India's investment reforms, rapid economic growth and social development have led to a surge in Foreign Direct Investment (FDI). Annual utilized FDI in India grew from $636 mn in 1991 to $26 bn in 2009, making India, in recent years, the third largest destination of FDI in the world.

The tremendous economic growth in India has resulted in an immense demand for basic infrastructure like roads, tunnels, power plants, water treatment plants and so on. In 1991, India began to investigate financing ways, specifically through the Build-Operate-Transfer (BOT) scheme to meet the needs of the country's infrastructure and to be attractive to foreign investors. BOT has the potential to be one of the most effective ways for India to raise funds for infrastructure projects in the near future. It also provides opportunities to foreign investors to penetrate into new markets in India. Despite this there may be a reluctance to engage in BOT because the application of BOT projects has a relatively short history across the world and especially in India. This means that the BOT scheme may not be well-understood and received by foreign investors in terms of its policy hurdles and its effectiveness in India, or by the Indian government representatives handling it.

Financial Risk Management Journal, Infrastructure Projects, Infrastructure Sectors, Transportation Network, Manufacturing Sectors, Foreign Direct Investment, Foreign Investors, Risk Management, Economic Growth, World Trade Organization, Liberalization Policies, Project Risk Allocation, Banking System, Government Corruption, Intellectual Property Rights, Economic Reforms.