CRISIL InfraInvex is a 10-point index where ‘1’ reflects least investment attractiveness and sector maturity and ‘10’ the highest.
The case for urgent measures to spur private investment in infrastructure has grown stronger in view of the sharp decline in overall spending on infrastructure in recent years—from ~7% of GDP during fiscals 2008-2012 to about 5.8% in 2013-2017. Accelerating infrastructural investment to ~6% of GDP over the medium-to-long term will need a significant step-up in public spending. But this won’t suffice, and the private sector will have to play a more prominent role.
The CRISIL Infrastructure Investability Index, or CRISIL InfraInvex, indicates as much. The index, launched last year, is a
10-point index where ‘1’ reflects least investment attractiveness and sector maturity and ‘10’ the highest. As per InfraInvex 2018, while power transmission, highways, and renewables remain the top three sectors, of these, highways alone saw an improvement in its score year-on-year. The other sectors that saw some improvement were ports, airports, power distribution, thermal generation, and urban. Railways’ score was unchanged from last year, while those of transmission and renewables declined.
This bolsters CRISIL’s call last year that the government alone cannot do the heavy-lifting needed in infrastructure sectors – a whopping Rs 50 lakh crore needed over the five years through fiscal 2022 – and that private investment has to be revived.
To be sure, the private sector has accounted for a third of India’s Rs 60 trn infrastructure investments in the decade through fiscal 2018. But as risks and constraints played out, private investments have declined. Indicatively, private investments’ share of total investments in the last five fiscals has fallen to 31% from 37% in the previous five. A closer look reveals the drags and drivers, as also the imperatives, in specific sectors:
Power transmission: Clear risk allocation, regulatory certainty and assurance of steady revenue streams has kept it the chart topper, but its score has declined mainly due to Power Grid’s dual role in planning and operations and preferential allotments to the central utility. This clearly is a sector that can unlock huge private investment, and creation of a pipeline of projects to be awarded through open bidding would be critical going forward.
Roads: It has seen rapid growth, with ~11,500 km of national highways added last year, and record PPP awards and successful toll-operate-transfer bidding this year. Well-defined programmes, clear pipelines, the NHAI’s credit profile, and well-tested and mature PPP models are good auguries. However, investability can be improved through regulatory separation and by addressing land acquisition issues.
Renewables: Last fiscal saw ~11.8 GW of installations, riding on robust interest from global funds and centralised procurement. But investments dipped following the levy of safeguard duty on imported modules; depreciation of the rupee; and cancellation of bids with higher tariffs.
Ports: A window to migrate old PPP terminals to the new rate regime, a relaxation of cabotage law and approval to a revised model concession agreement for PPP projects are among the drivers. However, slowing traffic growth and capacity overhang pose a drag. Investability can improve with a rehaul of the TAMP regime and implementation of the new Major Port Authorities Bill.
Airports: Strong traffic growth and ongoing changes to the PPP framework, initiatives such as Nabh Nirman, and development of more than 100 airports in the next 10-15 years are tailwinds. Focus on development of smaller airports and reducing procedural delays could improve the score further.
Power distribution: It saw a pick-up on the electrification push and a narrowing of gap between the average cost of supply and average revenue realised. But the financial health and slow pace of operating improvement of discoms are a matter of concern. Improving governance and better technology can improve the health of discoms.
Thermal generation: Centralised procurement of 2,500 MW in the medium term, the directive to pass on changes in cess and taxes, revision in coal escalation index, a rise in overall PLF and merchant prices, and decommissioning of old plants have led to an uptick. But unavailability of PPAs and fuel, and preferential treatment to public agencies pose challenges. Competitively bid PPAs, centralised procurement and equitable distribution of fuel can fuel growth.
Railways: Public investment is up significantly and the spurt in electrification is expected to yield savings. Investment of Rs 8.56 lakh crore over 5 years and the MoU with LIC of India are also among drivers. But a fall in the operating ratio and slow progress in PPP projects pose a strong drag.
Urban: Despite a marginal uptick, it hogged the bottom again. The bright spots include issuance of municipal bonds in a few cities and a slight pick-up in flagship schemes. Limited implementation capacity constrains absorption and institutional capacities remain weak. The imperatives include institutional strengthening, revenue enhancement measures, and faster execution to bring about a much-needed improvement.
- Vivek Sharma is Senior Director, CRISIL Infrastructure Advisory