Infra plan will boost investor confidence, but needs hand-holding: Experts

The proposed Rs 102-trillion infrastructure investment announcement by Union Finance Minister Nirmala Sitharaman would boost investor confidence, say sector experts and officials.  

The plan, however, will need initial hand-holding by the Centre, through higher spending, they add. The FM has said she expected Centre and states to have equal share of the proposed capital expenditure, at 39 per cent, followed by the private sector at 22 per cent.

“Identifying projects’ pipeline is a great initiative, to help focus on progress and provide visibility to investors. Sectors like irrigation and railways will likely continue to depend largely on government spending.   In the current context, I would expect the same for roads, until bank financing eases,” said Manish Agrawal, partner at consultants PWC India. He expects airports and digital infrastructure to attract private investment.

The head of an infrastructure finance company said, "This scale of money — equity and debt — will need foreign investors' participation, as they bring in long-term capital. They will look for reliability and stability in policy and execution. The recent instances of policy reversals for renewable energy projects in Andhra Pradesh act as dampeners."

Sharad Mahendra, director and chief operating officer at JSW Energy, says how banks and other infra finance companies will approach this "will depend on how the Reserve Bank of India responds”. Rating agency ICRA says: “While increasing investment in infrastructure is a key focus area of the government, the fiscal constraints remain a challenge.”

Their report says the National Highways Authority of India has substantially increased the pace of execution in the roads sector but has borrowed considerably to do so. “Thus, with the significant increase in infrastructure investment planned, increased budgetary support and private sector participation would be crucial.” 

Private road developers in recent interactions with the Union ministry have expressed unwillingness to invest in Build, Operate and Transfer (BOT) projects which involve private capital, according to people in the know.

Mahendra agrees the government will need to lead this investment cycle. “I expect renewable power to have a greater pull for private sector investment than conventional power. Definitely, government spends will have to lead the way. Overall financing for these projects, specifically in power, will depend on a number of factors, including how power purchase agreements is signed.” Conventional and renewable power are in the top five sectors for the planned investments.