Indian Union Budget 2021-22: Union Budget 2021-22 has clearly met most of the expectations around infrastructure development and financing. In addition to an over 25% increase in the budgetary outlay for infrastructure development, it has announced the setting up of a Development Finance Institution (DFI), backed by government support and initial capital contribution. As a next step to the National Infrastructure Pipeline (NIP), an initiative to create a National Monetisation Pipeline has been launched and specific asset categories for monetisation like the Indian Railways-promoted dedicated freight corridors called out. Separately, a special purpose vehicle (SPV) for land monetisation has also been announced. These measures clearly have the potential to address most of the challenges being faced in infrastructure financing today. However, a lot will depend on how effectively they are implemented on the ground.
Let us start with the DFI announcement in the Budget. As per the NIP, DFIs funded 20-25% of the annual infrastructure spend of around Rs 7-12 lakh crore during 2013-2018. DFI financing has, however, been focused on specific sectors like power and railways, where institutions like PFC, IRFC, etc. have contributed 40-50% of total investments. Also, while 30% of NIP investments are in sectors under State (even local) Government jurisdiction, the number of DFIs at the State level have been quite limited. To address these limitations, the proposed DFI(s) may need specific focus on sectors like urban infrastructure, agriculture/ irrigation, health and education. A regional or state-specific construct may need to be explored, with suitable governance arrangements and financial participation from State governments through mechanisms like land monetisation.
Coming to asset monetisation, the focus to date has been largely on sectors like power and roads/highways, with financing models and structures like toll-operate-transfer (ToT) and infrastructure investment trusts (InvITs) being deployed. Going forward, these models will have to be extended to sectors like the railways and urban infrastructure/transport (Metro railway projects for example). Accordingly, the right asset monetisation model would need to be selected, with a potential re-examination of the underlying regulatory & tariff framework, bid process-related activities and terms of concession/contract. Also, for InvITs promoted by government agencies, as in the case with Power Grid Corporation and NHAI, it would be important to appoint professional investment managers backed by an appropriate governance structure.
Finally, the SPV for land monetisation announced in the Budget would need to have suitable financial, management and institutional structures if individual ministries, Central PSUs, and State and local governments are to be effectively supported. The SPV would need to be backed by a transparent policy framework outlining its mandate, together with guidelines on the entire land monetisation lifecycle, from identification of surplus land and determination of optimum end use to bid process management and creation of the underlying contractual framework. The initiative may need to be part of a scheme wherein the services of the SPV as well as specific financing support (guarantees or long term loans for infrastructure projects) are made available to participating State governments. The proceeds from land monetisation could go to a separate fund for infrastructure development and be used by State governments to meet targetted budgetary outlays in infrastructure development.
As we can conclude from the above, while Budget 2021-22 does set the right direction for infrastructure financing, it is the actual implementation of the proposals which will be key to success.
The writer is Partner and Leader – Government & Public Services, Deloitte India