The second term of the NDA government comes with formidable challenges. Economic growth is at a five-year low, private investments are near decadal lows, bank credit is highly constrained, public-private partnerships in infrastructure are still to recover from spate of project failures witnessed in early part of the decade, and, in the meanwhile, the lines of fiscal strain are deepening.
By Jagannarayan Padmanabhan & Anshuman Chauhan
Spending a massive Rs 100 lakh crore on infrastructure by 2024 was one of the National Democratic Alliance’s (NDA’s) biggest pre-poll pledges to India. So, it’s time to cash that cheque. But the second term of the NDA government comes with formidable challenges. Economic growth is at a five-year low, private investments are near decadal lows, bank credit is highly constrained, public-private partnerships in infrastructure are still to recover from spate of project failures witnessed in early part of the decade, and, in the meanwhile, the lines of fiscal strain are deepening.
While government expenditure is driving roads and highways and railways, huge monies will be required for water and sanitation, logistics, renewables, among other sectors. How can the newly elected government get its act together from the word go, if it indeed means to transform India’s infrastructure landscape in the next five years?
These six steps can help achieve the lofty objectives:
1. Jump-start private investment: This could be achieved by: (i) reviving DBFOT, or design, build, finance, operate, and transfer mode of project execution for greenfield projects; and (ii) raising resources for investments through aggressive asset monetisation. DBFOT was a significant source of project investments till 2011; however, land acquisition and environmental clearance delays threw spanners in the works. The model can be revived by rejigging the risk allocation framework for projects—with the government taking on land acquisition and environmental risks entirely—and creating a shelf of implementable projects.
Asset monetisation is gaining significant traction of late, with the National Highways Authority of India (NHAI) and Airports Authority of India (AAI) implementing it with some success. Extending this to many more central and state infrastructure entities will go far in attracting a new class of investors, viz. pension funds and sovereign wealth funds, to the sector.
2. Overhaul the credit ecosystem: While the sector is almost completely reliant on bank credit for meeting its debt needs, banks have developed cold feet on financing projects, owing to asset liability mismatches and execution risks. The share of bank credit to infrastructure declined to 11.5% in FY18 after peaking at 15.2% in FY15, with a marginal uptick to 12.2% last fiscal. The government must come up with bond guarantee or credit enhancement funds for projects, to rejuvenate the bond market to meet the financing needs of the sector.
3. One-track is on-track: The government needs to identify key programmes and direct resources there, rather than spread them thin over multiple projects. For example, it has promised supply of piped drinking water to every household by 2024, creating the Ministry of Jal Shakti, which will take over all programmes related to water resources management. This is an efficient approach that redirects resources from multiple ministries to a single, tangible goal.
4. Reward winners with more mandate: Identifying winners among implementation agencies and using their capabilities in other related fields will go a long way towards improving outcomes. For instance, the NHAI has been successfully implementing the National Highways Development Project and its successor, the Bharatmala Pariyojna. So, its choice for development of over 30 multi-modal logistics parks reflects a wise move. Similar initiatives must be implemented across various sub-sectors.
5. Handhold state agencies that lack experience: Successful agencies must assist state agencies active in similar sub-sectors. For example, a number of states are interested in monetising existing assets through a bidding structure such as toll operate transfer (TOT) but lack the experience to execute such deals. Handholding by NHAI for such projects will help develop capacities.
6. Name ‘Nationally Important Projects’: The government must identify large flagship projects, such as the Navi Mumbai airport, Jewar airport, dedicated freight corridors, Vizhinjam port, etc. and designate them as ‘Nationally Important Projects’. A separate project monitoring group can be formed to monitor their implementation.
To its credit, the NDA’s first term straightened out its infrastructure priorities. Modi 2.0 will be all about adapting to newer challenges on the fiscal deficit-growth front, finding the money, collaborating with the private sector, and driving reforms to deliver on its infrastructure promise.
The world is keenly watching.
Jagannarayan Padmanabhan is Director & Anshuman Chauhan is Associate Director at CRISIL Infrastructure Advisory