US$750 billion gap in India's push for China-like infrastructure

To see the challenge Indian Prime Minister Narendra Modi faces in improving the country's ailing infrastructure, ask the state-run company specialising in lending to the sector. It estimates US$750 billion of debt is needed for the task.

That is more than twice the size of Singapore's economy, and five times the existing 9.2 trillion rupees (HK$1.1 trillion) of bank loans to Indian infrastructure projects. The solution is to rethink current funding techniques, according to S.B. Nayar, the chairman of India Infrastructure Finance.

"There's an enormous requirement," Nayar said. "It's very difficult for the current system to meet this."

Nayar said the government should establish more lenders for specific areas of infrastructure, woo private investors - including from overseas - and allow his company to target at least an 8 per cent share of infrastructure loans, from 3 per cent now. Modi's agenda is focused on stoking investment, including clearing a backlog of 13.5 trillion rupees of stalled projects.

"Banks' growth isn't keeping pace with economic growth," Nayar said. "So there's a gap. Indian banks have to raise more equity and become more profitable, get more investments, have a bigger balance sheet, lend more."

Nayar contrasted the growth in the size of China's banks with smaller Indian lenders, which are also tackling rising bad debts. State Bank of India, the nation's largest lender, had assets of about US$400 billion at the end of last year, about an eighth of the total held by Industrial and Commercial Bank of China.