Optimal approaches that recognize the specific kind of market failure/s, in the policy and design of infrastructure, greatly reduce the financing costs and improves the ability of to attract finance in the private provisioning of infrastructure. When state systems are weak organizationally it is first best to strengthen the state capacity so that it can minimally perform the roles of design, regulation, development of frameworks, and of monitoring, for the private provisioning of infrastructure. This is particularly so in the case where there are dual market failures arising out of both the natural monopoly and the appropriability failure aspect. The challenges in design and policy are large and with many false starts it is only now barely beginning to be considered in India. Thus infrastructure design rather than debilities in financial markets remain the key problem. The potential to use of foreign capital to finance infrastructure is often overstated. The forces leading to the current mess-up of the Indian banks and FIs in lending to infrastructure are brought in perspective. The key issues in developing state capacity, and the changes required for getting the design of infrastructure right, as also to bring functionality to the role of financial institutions in the private development of infrastructure are highlighted. Governance reforms that make for better development of infrastructure are highlighted.

Book chapter in

Kathuria, Rajat and Prateek Kukreja (eds.), 20 Years of G20 -From Global Cooperation to Building Coonsensus, Springer. New Delhi

Link to the chapter


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