Asian Infrastructure Investment Bank Predicts Rise in India ‘s Cost of Infrastructure Financing

The China-led Asian Infrastructure Investment Bank (AIIB) is anticipating the rise in the cost of India’s infrastructure financing. The AIIB in its report titled “Asian Infrastructure Finance 2019” says that slowing global economy, higher borrowing costs, and geopolitical tensions can induce greater uncertainty among investors.

The Asian Infrastructure Investment Bank is expecting a marginal increase in the cost of infrastructure financing in India. The report stress on geopolitical shocks or commodity price fluctuations that can intensify the cost of financing even further. In India, reliance on government funding through EPC and annuity-based infrastructure financing models reflected the weak balance sheets of some domestic commercial banks.

According to Rajat Misra, Investment Operations Manager at AIIB, India’s move towards using innovative PPP structures like hybrid annuity model and Toll-Operate-Transfer model in the road sector can restore private sector interest in infrastructure.

For eight countries studied by AIIB, which includes India, China, Bangladesh, Pakistan among others, the total value of infrastructure market transactions reaching financial closure fell in 2017 and likely to register a small decline in 2018, compared to 2016, the report said.

India’s infrastructure transaction activity, after reaching $72.7 billion in 2014, dropped to $48.9 billion in 2015 and to $40.4 billion in 2016. While in 2017, it bounced back to $81.3 billion due to a surge in a transaction in the oil and gas segment, other sectors continued to see a decline. In the nine months of 2018 (till October), the total closed and ongoing transaction value reached $46.4 billion.

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