Is annuity payment for infra funding ineffective?

The government's infrastructure investment target of USD 1 trillion is all fine, but the industry is divided on just how this money should be raised, reports CNBC-TV18's Anchal Gupta.

The government expects the private sector to cough up USD 500 million (50% of its investment target) in infrastructure projects over the next five years.
On its part, the government is providing these projects with annuity payments, and one-time viability gap funding. But players say the capital-intensive nature of these projects makes the annuity model ineffective.
Sunil Agarwal CEO of ARSS Infrastructure, said, "This type of funding will not help in closing of financials. Rather upfront funding (what NHAI was doing earlier) has to be taken care of. Upfront funding should be done rather than annuity funding."
A few others say that while viability funding works for capital-intensive projects like the Metro, the annuity model works best for projects like road laying.
Suneet Maheshwari CEO of L&T Infrastructure Finance, said, "Any project where there is a traffic risk and therefore a revenue risk perspective, then probably, annuity is a better way of restructuring it because annuity ensures cash inflow into a project and therefore, the financing of the project."
Clearly, the debate over the best funding model is set to continue for a while. But there is another hurdle to financing.
The industry is unanimous in saying that an under-developed bond market is a major obstacle, and till that bottle neck is cleared up, investment targets, however, gigantic and awe-inspiring, will remain just that