Indian Govt infrastructure, local govt plans positive: Fitch

New Delhi, Mar 20: Fitch Ratings today said the recent efforts of the Indian government to develop its infrastructure and reform its local government have resulted in the country's move towards an emerging market model for its infrastructure finance, and a more sophisticated domestic bond market.

''There are hopeful signs that India will become an emerging market model for both the decentralisation of governmental responsibility as well as for the creation of sustainable financing for infrastructure projects,'' said William Streeter, Managing Director and Head of International Public Finance Japan and Asia Pacific, in a special report titled, 'India's Public Finance Outlook: Towards an Emerging Market Model'.

Fitch further notes that India's central government infrastructure development plans and local government reforms provide a very supportive platform for these efforts.

Nevertheless, despite the push from the government, Fitch notes that the implementation of these reforms has been slow.

In the report, the agency also notes that recent financing experiments by several key Indian states - using a variety of pooled and conduit financing techniques through state-owned corporations - hold much promise as proto-types for the sustainable financing of infrastructure projects in India.

''If these financing structures are adopted properly by more states, they will also promote diversification of India's domestic bond market,'' said N Raju, Associate Director, Fitch India.

Raju adds that a few of the larger cities and local government corporations have also begun entering the bond market on a standalone basis. With India's rapid urbanisation, there is an ever increasing need to provide basic infrastructure, particularly water, sanitation, roads and solid waste management.

''The financial resources required to expand these basic amenities are enormous, resulting in a yawning resource gap that cannot be met from traditional central and state government grants and loans,'' says S Nandakumar, Director at Fitch India.

Recognition of this funding gap has resulted in a nearly universal acceptance that the private sector can and should play a larger role in the financing of infrastructure in partnership with the public sector, whether actively as a project sponsor or passively as an institutional bond investor.

According to Fitch's report, the latter role carries greater promise for enhancing the existing supply of capital for infrastructure, provided that structural provisions meaningfully enhance the credit quality of proposed debt instruments so as to engage the country's domestic debt market.

In order for India's states and urban local bodies to access domestic capital markets for their infrastructure projects, fundamental changes in their governance and financial position are required.

These include improvements in local budgeting, revenue collection and accounting methods, voter participation in project planning and approval, policy coordination between levels of government, and increased financial transparency to regulators, rating agencies, investors and the public.

The agency says that reliable local government revenue streams will eventually reduce or eliminate over-reliance on governmental guarantees or subsidies.

UNI