Topic – Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
4) India and most of the developing world face a twin challenge—closing the infrastructure financing gap and changing the composition of financing. Critically Analyze.(250 words)
Directive word
Critically analyze- here we have to examine methodically the structure or nature of the topic by separating it into component parts, and present them as a whole in a summary. based on our discussion we have to form a concluding opinion on the issue.
Key demand of the question.
The question wants us to delve deeper into the infrastructure and infrastructure needs of India and describe the twin challenges it faces. On the bases of our discussion we have to form an opinion on the issue.
Structure of the answer
Introduction- write a few introductory lines about the infrastructure needs of India. E.g It is estimated that infrastructure investments needed in energy, transport, telecommunications, water and sanitation, education, and health projects will amount to more than 5% of gross domestic product (GDP) in developing countries.
Body-
- Discuss the twin challenges faced by developing economies like India. E.g Meeting the financing gap needed for infrastructure services will be one of the biggest challenges in development. Unlike in the UK and the US, in developing economies, nearly 70% of the funding for infrastructure projects comes from the government budget, 20% from private players, and 10% from multilateral development banks; Commercial banks have dominated the financing of infrastructure projects. This amounts to the government transferring a huge amount of risk from public to the private sector. With the structure of financing such that there is heavy reliance of private financing on the public sector and with heavy termination clauses included in PPP contracts, the government is potentially exposed to fiscal risks; Given rising global macroeconomic and trade concerns, changing the composition of financing is as important as maximizing infrastructure capital. Changing the composition of capital flow also has the potential to increase the efficiency and sustainability of public finance and infrastructure projects etc.
- Bring out the need for multiple sources of financing development projects. E.g While commercial banks will continue to be an important source of infrastructure finance, capital markets need to play a bigger role, given the increased demand for long-term sources of finance for infrastructure projects. Bond markets, especially local currency bond markets, will be critical to filling the infrastructure-investment gap etc.
Conclusion– based on your discussion, form a fair and a balanced conclusion on the given issue.
