Rise in interest rates jeopardising infra projects: FICCI

NEW DELHI: Amid policy makers stressing the need to accord highest priority to infrastructure spending, the industry body FICCI said rising interest rates for projects have jeopardised their viability.

"The rise in interest rates for project financing in the country have increased and are jeopardising the financial viability of projects under the PPP mode," Federation of Indian Chamber of Commerce and Industries (FICCI) President Harsh Pati Singhania said today.

Since the infrastructure projects have long gestation period and in many cases are not directly commercially viable, innovative instruments and mechanisms are needed for making them attractive for investments, Singhania said at the inauguration of a two-day summit on infrastructure.

The most common cause of failure of projects under public-private-partnership (PPP) lies in over estimate of the potential demand for services that leads to over pricing of services by private sector, he said.

"There is a need to develop appropriate mechanism for financing infrastructure, especially the development of a domestic debt market," he added.

Earlier, Planning Commission Member Kirit Parikh called for giving the highest priority to the spending in infrastructure projects to stimulate the economy even at the cost of deteriorating fiscal deficit.

The need of the hour, Parikh said, was to lower the interest rate and improve access to finance.

"Maybe 7-8 per cent rate (interest rate) at which people will be able to borrow and which will be a good stimulus," he said.

He pointed out that of the 60 road projects that had been put up for competitive bidding, 40 per cent received no bids, the key problem being expensive finance, lack of access and high perception of risk.

He also underlined the need for developing a long term debt market to meet the needs of infrastructure developers of finance.

The imperative for additional investment in infrastructure is powerful, Parikh said, as an additional one per cent of GDP spent on infrastructure leads to a one per cent rise in GDP.

Also present there, India Infrastructure Finance Company (IIFC), CMD SS Kohli said the twin problems faced by investors were land acquisition and the number of clearances required.

A FICCI-Deloitte study on India's infrastructure released on the occasion, states that some of the key apprehensions of the private sector prohibiting them to invest in infrastructure are lack of clarity in policies, high capital intensity, limited avenues of long term finance, cost escalations and delays and long gestation periods.