Infrastructure investment till around 1990 was financed through budget allocations with money for investment coming from the public Exchequer. The private sector stayed away due to long gestation periods and inadequate financial returns. These sectors, largely in the nature of public utilities, comprised roads, irrigation, railways, airports and seaports and urban and rural water supply, sewerage and drainage and power generation and transmission. 
Public utilities have their rationale in high social/economic direct/indirect benefits, though these could be incurring financial losses or earning meager returns. Another deterrent in public utilities was the high investment and long gestation period. As a result of the preoccupation with public sector, government finance used to be under strain and fresh investment in infrastructure suffered. Again, investment and operation of sectors was departmentally managed and there was no organisational autonomy. This resulted in inefficiency in financial performance and poor quality of service.
This scenario was found to be seriously wanting as the country entered the 21st century. If the economy were to metamorphose from a low-income, slow-growing economy to a fast-growing economy, it would require high industrial investment, which would again be conditioned by infrastructure investment and the quality of existing infrastructure facilities. 

Budget funding
Having embraced wide ranging economic and financial reforms to improve economic performance, the government at the Centre, as also in the states, realised the shortcoming of the public Exchequer as an investment booster, particularly in view of the focus placed on containing deficits in government budgets. This led to formation of autonomous corporate bodies in the public sector, which could raise money from capital market by way of bonds, debentures etc., apart from budgetary support, to meet the investment requirements. 
This worked well in industrial sectors like oil and natural gas, petroleum refinery, telecom, steel and engineering. But, this did not solve the problems of funding for massive investments required in infrastructure that were mired in hidden and explicit subsidies and heavy losses.
There is now a broad consensus on the need for progress towards economic rate of return in public utilities in the first place, ultimately, aiming for an adequate financial return that alone can act as a powerful incentive for private sector investment. Thus, there is a trend towards levy of user-based fees in public utilities be it the railways, roadways, power or irrigation. The progress is halting in nature. The measures have evoked strong protests forcing partial or complete rollbacks on several occasions. There has also been fine-tuning of subsidies like the one on kerosene and domestic LPG to contain the subsidy amount.
Apart from managing fund constraints in investment, the government is also trying to increasingly involve the private sector in investment projects as also in the running of infrastructure facilities, which can improve quality of the service and subject it to financial discipline. 

Emerging trends
In 2003, according to a World Bank study, 47 developing countries implemented more than 100 new infrastructure projects with private participation, under schemes ranging from management contracts to concessions, divestitures and greenfield build-operate-transfer or build-operate-own projects. Nevertheless, developing countries saw investment commitments to infrastructure projects with private participation decline for the third consecutive year, to just 40 per cent from the 1997 peak. Telecom was the most preferred area by the private sector; seaports and toll roads dominated in East Asia. Water supply and sewerage was badly affected by private sector apathy in 2003.
The last four-five years have seen several innovative funding practices in infrastructure investment in India. Some of these have been outlined below. The policy framework/practices are still evolving and one can expect to see several new financial packages and markets come into effect in the coming years. Incidentally, there are signs of the private sector getting significantly into telecom and power sectors that have seen substantial reforms result in decent financial returns.