Sept. 25, 2007
In a new study titled “Complementing Economic Advances in India: A New Approach in Financing Infrastructure Projects,” SMU Cox Business School Professor of Finance Andrew Chen and co-author Jennifer Warren Kubik have proposed an innovative solution to improving India’s infrastructure that has significant implications for capital markets and development beyond the infrastructure project itself.
“For India to continue growth on a sustainable path, investment in infrastructure is critical. Infrastructure bottlenecks are seen as one of the leading obstacles for India in realising its economic growth potential,” says the study. Indian infrastructure development needs substantial financing. While Prime Minister Manmohan Singh estimates that a total of $320 billion would be needed for infrastructure development by 2012, Rajat Nag, managing director of the Asian Development Bank, suggest that $500 billion was needed.
Chen and Kubik suggest approaching this problem by initially raising capital through public offerings (IPOs) and securitisations globally for infrastructure projects. This approach, coupled with financial innovations, could help smooth the frictions which lay at the root of India’s infrastructure development problems, say the authors. The private sector’s ability to attain efficiency in operations, management, and profitability has been needed for numerous financial and economic reasons in countries that are privatising public works assets — roadways, airports, and both power and water utilities.
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