'India has to develop domestic capital mkt'

NEW DELHI: India needs to develop its capital market as the primary source for long-term funding as foreign investment alone will not be enough to provide $ 300 billion the country requires for developing infrastructure in the next five years.

Actual provision of foreign currency debt had been relatively limited to some large projects with strong sponsors and foreign currency revenues, said a report prepared jointly by rating agencies Moody's and ICRA.

"The reasons (of limited foreign funding) include generic difficulties existent in the emerging markets, over use of long-term foreign currency debt to finance projects that generate local currency revenues," Moody's Representative Director for India and author of the infrastructure report Chetan Modi said.

The report evaluates the challenges facing the development of project finance in India and the risk factors involved therein.

The challenges include concerns over uncertainty of completion, lenders ability to implement remedies for projects not performing as projected, risk of failure by government bodies to deliver on their contractual obligations and the credit quality of key project enterprises.

Although the move to competitive bidding has many benefits, it can also present additional risk issues over the long duration of project agreements, when selection is based essentially on the lowest-period bid, the report said.