Former Reserve Bank of India Governor Raghuram Rajan said India needs to reduce risk in its infrastructure projects before it can explore ways to finance the sector.
“I come back to say we have to de-risk our projects more. Right now the risk embedded in infrastructure is huge,” Rajan said in a virtual interview with HDFC Ltd.’s Chairman Deepak Parekh at the Ascent e-Conclave 2020 last week. “India’s infrastructure sector is in trouble because it’s subject to so much risk that doesn’t exist anywhere else in the world.”
The problem, Rajan argued, was that India does not finance infrastructure with a lot of equity. “We try to finance it a lot with debt with very little equity,” he said. “If your risks are huge, you need far more equity to finance it.”
“And obviously that leads to the other difficulty which is that we do not have so much equity finance available in the country,” he said. “Risk capital is limited.”
De-risking projects, building equity buffers and doing due diligence would be better for the infrastructure sector, he said.
Watch the full conversation between Rajan and Parekh here.
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