0.1970
900 319 0030
x

27/11/2020 - Indian Economy

iasparliament Logo
November 26, 2020

Discuss the financing mechanisms that can work for the development of social infrastructural projects in the country. (200 Words)

Refer - Livemint

Enrich the content from other sources, if the question demands.

4 comments
Login or Register to Post Comments

IAS Parliament 3 years

KEY POINTS

Social infrastructure projects are foundational assets that support the quality of life of a nation, region or city and go beyond basic economic functions to make a community an appealing place to live  healthcare facilities, schools and other educational institutions and water and sanitation, to name some.

Financing mechanisms that can help

·        Partial credit guarantee to help private developers raise cost-effective funds for social infrastructure projects at a portfolio level through capital market instruments and channel long-term institutional investments. Minimum offtake guarantee by government with timely funding of related payment dues, to private borrowers, with liquidity backup to mitigate the risk of default arising from liquidity mismatches for the issuer of a debt instrument.

·      Minimum return guarantee for investors. Sectors like airports have in-built characteristics to ensure a minimum return to investors courtesy a stable regulatory mechanism that allows for regulated returns on aeronautical assets, and true-up on account of variation in actuals and forecasts, including traffic variations.

·      Pooled funding to allow less-creditworthy entities like small and medium cities to aggregate their financing needs, diversify their credit risks, offering scalable investments for investors besides spreading transaction costs. The mechanism opens up avenues for projects/ entities that have inherent credit risks and might not get funding from a single entity.

Picking appropriate PPP structure is important

·      The revenue model for private developer may be a mix of subsidised and market determined charges based on eligible beneficiaries for particular government service, while other users pay market-determined prices.

·       “Value capture" is one mechanism for the public sector to regain some of the indirect benefits of projects.

 

Aradhana Tiwari 3 years

Social infrastructure projects  can be broadly defined as the construction and maintenance of facilities that support social services. Eg.- schools, parks and playgrounds, structures for public safety, waste disposal plants, hospitals, sports area, etc.

A number of financing mechanisms are available for social infrastructure projects :

- Government Funding

- Corporate or On-Balance Sheet Finance

- Project Finance

>>> Social infrastructure projects : Financing mechanisms ---

1) Partial credit guarantee :

-This is to help private developers raise cost-effective funds for social infrastructure projects at a portfolio level through capital market instruments and channel long-term institutional investments.

- The idea is two-fold – reduce the potential financial loss for the lender in case of a financial default, and benefit the borrower through better access to lower-cost credit.

2) Minimum offtake guarantee :

- This is done by government with timely funding of related payment dues, to private borrowers, with liquidity backup to mitigate the risk of default arising from liquidity mismatches for the issuer of a debt instrument.

3) Minimum return guarantee for investors of social infrastructures projects.

4) Pooled funding : this mechanism opens up avenues for projects/ entities that have inherent credit risks and might not get funding from a single entity.

5) Investment by the private sector under corporate social responsibility (CSR) obligations - attract more private funds and resources in such projects.

6) Global investment in ESG funds.

IAS Parliament 3 years

Good attempt. Keep Writing.

Venkateshwaran R 3 years

Kindly provide feedback. Thank you mam/Sir

IAS Parliament 3 years

Good attempt. Keep Writing.

Venkateshwaran R 3 years

Thank you for the feedback. I will keep writing

aswin 3 years

Please review

IAS Parliament 3 years

Good attempt. Keep Writing.

ARCHIVES

MONTH/YEARWISE - MAINSTORMING

Free UPSC Interview Guidance Programme