Investments in India’s Infrastructure sectors will grow to Rs 50 lakh crore in the five fiscal years to FY22, up over a third from the previous five years, Crisil said on Thursday, predicating the estimate on average GDP growth of around 7% during the period.
Investments in India’s Infrastructure sectors will grow to Rs 50 lakh crore in the five fiscal years to FY22, up over a third from the previous five years, Crisil said on Thursday, predicating the estimate on average GDP growth of around 7% during the period. However, the rating agency stressed the need for deepening the infrastructure financing ecosystem in the country and suggested five specific steps for the same, including faster execution of the National Infrastructure Investment Fund and a well-calibrated Bond Guarantee Fund to address the sluggish bond market participation in the infrastructure sector.
Significantly, the share of private investments in infrastructure, which has been stagnant in recent years, will continue to be rather subdued — private players’ share in overall infrastructure investment will be just around 28%, the agency predicted. Unveiling “Crisil Infrastructure Yearbook 2017”, NITI Aayog CEO Amitabh Kant said there was an urgent need for private sector investments to “come back”. State-level initiatives were required for this, he said. According to Crisil, the power, highways, transport and urban sectors would account for 77% of the infra spending in the FY18-22 period, which will see infrastructure investments of 5.5% of the gross domestic product.
The sectors that will see rapid growth in investments in the five-year period are railways (Rs 8 lakh crore versus just Rs 3.8 lakh crore in FY13-17) and urban infrastructure (Rs 5.5 lakh crore versus Rs 1.9 lakh crore). Crisil suggested that public sector banks must be nudged to securitise assets from their infrastructure portfolio and called for fast-tracking of the much-delayed corporate bond market reforms, particularly with respect to enhancing investment limits for foreign investors, developing primary bond market akin to that of the primary equity market and revisiting infra bonds to attract retail investors. It said: “To some extent, the twin balance sheet challenge in infrastructure can be attributed to unravelling of key risks, including policy inconsistency… Action on the demand side including comprehensive re-tooling of PPP (public-private partnership) frameworks and creation of bankable projects are of vital importance in the road ahead.”
Power, roads, telecom, irrigation and railways accounted for about 83% of the Rs 61 lakh crore investments in infrastructure over the past 10 years. While power transmission, renewable energy and highways are the most attractive sectors for investment in infrastructure, railways, thermal power generation and urban infrastructure have been identified as the weakest on this front, in what underlines the need for making projects more attractive to investors in these areas. The main growth drivers for power transmission was the $3.5-billion investment in green energy corridor by FY22, the doubling of inter-regional transmission capacity between FY17 and FY22, and assured revenue streams. Government policy support towards attaining the target of 175 GW of renewable energy capacity by 2022 and availability of private financing made renewables an attractive sector according to Crisil. Roads and highways are attractive to investors on the back of strong NHDP/Bharatmala pipeline, sharp increases in budgetary outlays, revival of stalled projects and reduction in delays in project completion.
However, policy inconsistency, shortage of fuel availability and lack of power purchase agreements are hurting the thermal power generation industry. Subdued traffic growth and freight challenges, safety concerns, slow pace of monetisation of real estate assets and organisational revamp are some of the reasons that are putting off investors from railways. Lack of operations and maintenance cost recovery and slow execution on ‘smart cities’ projects are some of the main drags for urban infrastructure. Holding the government, commercial banks and the private sector responsible for less-than-optimum level of infrastructure investments, Kant said that “the government has put out a number of projects without proper preparation” while the private sector “indulged in aggressive bidding and backed out of projects” without performing sufficient due diligence and commercial banks did not correctly appraise projects.