India's budget for 2012-13 has confirmed the commitment to spend INR 50 trillion (US$ 1.2 trillion) on infrastructure over the duration of the 2012 to 2017 five-year plan. Half of this investment is expected to come from the private sector, and the government has announced a series of measures to facilitate this investment.
Among the initiatives, the government will allow new sectors to qualify for Viability Funding Gap (VFG) money to make them more attractive to private investors. Sectors such as irrigation, oil & gas infrastructure and fixed telecommunications networks are now eligible for this 'seed money' to finance the early stages of work.
The government also proposes to increase the availability of tax-free bonds to INR 60000 crore (US$ 12 billion) per year in the infrastructure sector, INR 10000 crore (US$ 2 billion) of which will be available to National Highway Authority of India (NHAI) projects.
Earlier this month the government set up an Infrastructure Debt Fund to attract overseas investment in Indian infrastructure. In his budget speech finance minister Pranab Mukherjee said this now stood at INR 8000 crore (US$ 1.6 billion).
Although the budget has been generally welcomed in India, some commentators have questioned the government's ability to attract US$ 500 billion of private investment in the infrastructure sector over the next five years. Anand Sundaresan, managing director of Schwing Stetter India said, "50% of this [US$ 1 trillion infrastructure investment] has to come through Public Private Partnership projects as against 30% in the 11th five-year plan. We have not achieved the PPP target of the 11th five-year plan, therefore, if the government wants to attract private investors for the PPP projects, the necessary reforms and policy changes should be brought in immediately."