Easier financing must be facilitated to spur infrastructure growth
Vikash Kumar Sharda
Even as increased investment in the infrastructure sector is necessary for India, private investment has taken some beating over the last three years. Power and Roads, which account for around 79% of banking loans to the sector, saw outstanding growth dip to 4% during FY15-16. This makes it important for the government to increase the budgetary allocation for infrastructure creation.
To be fair, there has been a consistent increase in budgetary support to infrastructure sub-sectors over the years. Roads and Railways are the two sub-sectors which have accounted for a major part (about 90%) of budgetary support. Power, Ports, and Airports, the other main sub-sectors taken up here, have got less budgetary support because they witness greater private sector involvement.
Power is the largest sub-sector and as lenders and investors are emerging out of the red, one of the major initiatives to improve distribution rests on the success of UDAY. As for grid-connected renewables, the Budget could play a role in driving more private investment across the value chain — by lowering entry barriers, and kick-starting investments and manufacturing under ‘Make in India’ in novel areas such as electric vehicles, hybrid renewable assets, and storage solutions. The rooftop and distributed power generation programme can also see some action.
Roads and Highways, the second largest sub-sector, has registered greater investment momentum in the last two years. With a high construction target (more than 10,000 km) for FY 2017-18, the fund requirements are expected to increase. Also, with the revival of PPP under the Hybrid Annuity Model, private participation would be limited to around 50-60% of investment and the balance would need to be brought in by NHAI.
There is also a need for a robust institutional mechanism to resolve disputes in a time-bound manner. With the increased focus on rural areas, the allocation under the Pradhan Mantri Gram Sadak Yojana (PMGSY) might increase more than expected.
As for the railways, around 30% of the R8.5 lakh crore of investments it has planned over 2015-19 has to be raised through gross budgetary support and debt. LIC has committed R1.5 lakh crore. The rest shall be raised from internal generation, JVs and PPP route. Station redevelopment and PFTs are reliant almost entirely on PPP mode. Thus, budgetary support is critical to the implementation of IR’s development plan.
In the port sector, the Sagarmala programme has identified around 400 projects of which ~ 200 projects are to be taken up over the next 2-3 years. The investment for these projects is estimated at R2.8 lakh crore. Private investment in the sector has been constrained by stressed assets and high NPAs, with high cost of domestic debt being a key factor. There is a need to identify alternative sources of financing to bring down financing costs.
On the financing front, most developers are suffering from unavailability of adequate equity and therefore, it is important to channelise National Infrastructure Investment Fund (NIIF) resources for projects as soon as possible. Institutional investors like Insurance and Pension funds should be incentivised to enter the financial mainstream of the sector. Further, there is a need to develop the secondary market for operational infrastructure projects.
The author is Director Infrastructure, PwC. The views are personal