Funding Mechanisms for Delhi-Mumbai Industrial Corridor

In an Endeavour to raise the investment in infrastructure from its existing levels of 4.7% of GDP to around 8%, Government of India is actively promoting Public Private Partnerships (PPP) in the key infrastructure sectors viz. transport, power, urban infrastructure, tourism and railways. PPPs are seen as an important tool for producing an accelerated and larger pipeline of infrastructure investments, and catching up with the infrastructure deficit in the country. A PPP Cell has been established in the Department of Economic Affairs (DEA) and setting up of similar nodal agencies is being undertaken in each of the state across the country to administer various proposals and coordinate activities to promote PPPs. Further, GoI has initiated following funding schemes for development of infrastructure in the country:

Viability Gap Funding (VGF):

VGF is a special facility to support the financial viability of those infrastructure projects, which are economically justifiable but not viable commercially in the immediate future. It involves upfront grant assistance of up to 20% of the project cost for state or central PPP projects implemented by the private sector developer who is selected through competitive bidding. An Empowered Committee has been set up for quick processing of cases. Sectors shortlisted for availing Viability Gap Funding Assistance include Roads and bridges, railways, seaports, airports, inland waterways, Power, Urban transport, water supply, sewerage, solid waste management and other physical infrastructure in urban areas. Infrastructure projects in Special Economic Zones and International convention centers and other tourism infrastructure projects.

India Infrastructure Finance Company Limited (IIFCL):

GoI has established IIFCL as a wholly government-owned company, with an authorized capital of INR 1,000 Crore and paid-up capital of INR 100 Crore to provide long-term finance to infrastructure projects, either directly or through refinance. IIFCL caters to the financing gap in long-term financing of infrastructure projects in the public, private, or PPP sector. Any government project awarded to a private sector company for development, financing, and construction through PPP will have overriding priority under the scheme. IIFCL is an apex financial intermediary for the purpose of providing financial support to infrastructure projects and facilities in the country.

Funding from Japan Bank for International Cooperation (JBIC):

The Export-Import Bank of Japan (JEXIM) and the Overseas Economic Cooperation Fund (OECF) merged to form Japan Bank for International Cooperation (JBIC) under the JBIC Law on October 1, 1999. JBIC is a statutory mandate to conduct Japanese Government‟s external economic policy and economic cooperation. At present India accounts for the largest portion of JBIC funding (with 6.5% share constituting US$13.2 Billion) among the 27 countries, with an overall loan size of US $ 184.4 Billion. JBIC has two distinct operations as International Finance Operations (IFO) and Overseas Economic Cooperation Operations (OECO).

International Finance Operations (IFO):

Lends directly to borrowers or via financial intermediaries primarily to finance to: promote Japanese exports, imports and economic activities overseas and the stability of international financial order. It involves Export Loans to promote Japanese plant export to developing countries and Import Loans to promote import of natural resources and manufactured products to Japan. For this providing guarantees to Loans extended by Japanese Commercial banks and to bonds issued by developing countries. It is similar to Untied Funding.

Other Economic Cooperation Operations (OECO):

YEN Loans make development funds available to developing countries at low interest rates and with long repayment periods. These loans provide funds to develop and improve the economic and social infrastructure necessary to support self-help efforts and sustainable economic development for developing countries. The YEN loans are available in various forms like Project Loans, Engineering Services (E/S) Loans, Financial Intermediary Loans (Two-Step Loans), Structural Adjustment Loans (SAL), Commodity Loans and Sector Program Loans (SPL).

Japanese Depository Receipt:

A Japanese Depositary Receipt (JDR) represents ownership in the shares of a foreign company trading on Japanese financial markets. It is one of the funding options and very beneficial financial tool for Indian private companies. The merits of JDRs are financing, enhancing the credibility, expanding the base of shareholders, and promoting the company brand in Japan. JDRs trade on the Tokyo Stock Exchange (TSE) in yen, and in accordance with Japanese market conventions, enabling foreign issuers to tap the Japanese capital market and local investors to efficiently invest in quality international companies.

A depositary receipt (DR) program can help you access capital outside your home market, build corporate and brand visibility on an international basis, broaden and diversify your shareholder base, expand the market for your shares and even develop share plans for foreign-based employees. Japan’s depth of nancial resources, substantial economy and captive investor base make it an ideal market for DR issuance. Japan’s economy is the third largest in the world and the second largest in Asia in terms of nominal Gross Domestic Product (GDP). And as a major center for international nance and trade with a wide array of multinational corporations, and prominent institutional and retail investor communities, Japan is primed to support new opportunities for international investment.

Funding Covered By Nippon Export and Investment Insurance:

Trade and investment insurance of Nippon Export and Investment Insurance (NEXI) is insurance which covers the risks in overseas trading transactions conducted by Japanese companies, such as export, import, overseas investment, and financing. The role of trade and investment insurance is to mitigate a number of risks – political risks, such as restrictions on remittance of foreign currency, war, civil war; and commercial risks, such as nonpayment by the export counterpart buyer – that are inherent in overseas trading transactions and that cannot be covered ordinary marine insurance. It is also funding through Buyer‟s Credit Insurance, Overseas Untied Loan Insurance and Overseas Investment Insurance.

Funding from Multilateral Agencies: 

Multilateral agencies such as the Asian Development Bank and the World Bank have welcomed the recent steps taken by Government of India (GoI) with respect to VGF and IIFCL. These agencies are expected to assist GOI in promoting PPPs across sectors and regions of India, through a range of financing and advisory and technical assistance (TA) measures. Moreover, these agencies would also assist governments in tailoring the PPP solutions to specific demands of the individual states, sectors, and projects. pyramid

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