India has a large and fairly well developed infrastructure framework extending to all parts of the country. However, certain areas like power, telecommunications, transport etc. need further expansion and modernization. And, the public sector alone can no longer fully finance the requirements.

The 1998-99 Budget announced by the BJP government has given a major thrust to infrastructure development, particularly in energy and power, transport and communications, by stepping up public expenditure in these sectors. This increased government spending on infrastructure is expected to boost India's sluggish economy. The lack of a clear policy frame work for private sector participation has hampered the badly-needed infrastructure development, particularly in telecommunications, power, roads and ports. The public sector, which led the investment in infrastructure development until recently, has reduced its investments considerably, due primarily to its poor fiscal position.

IDFC:

The Infrastructure Development Finance Corporation (IDFC), established in 1997, is a specialized financial institution, set up to provide credit enhancement to infrastructure projects, and to extend long term loans and guarantees that existing institutions may not be able to provide. IDFC provides loans and guarantees worth dols 17million to five projects.

The Asian Development Bank and the International Finance Corporation are shareholders in the IDFC. A comprehensive funding package for infrastructure projects has been developed by the IDFC and the Power Finance Corporation (PFC). At the state level, the PFC is primarily focussed on public sector projects, while the IDFC concentrates on the private sector. In the recent budget, the government proposed giving IDFC incentives and benefits available to other public financial institutions.