Institutional and financing issues need to be addressed

The mood, going into the Budget, is sombre. This is mainly because of a slowdown in infrastructure investments owing to weak investor confidence on governance issues, increased interest rates and inflationary pressure, and hindrances to project execution — specifically land acquisition, but also delays in dispute resolution.

The government will have to balance its act carefully to revive the capex cycle, moderate the borrowing target, propose a higher outlay for infrastructure sectors and measures to enhance external fund inflows into infrastructure. In this context, the need to attract much larger quantum of private investment into infrastructure is likely to be reiterated. Enabling this would require addressing sector-specific institutional issues, and infrastructure financing issues.

In the roads sector, though the bid process has been standardised, the velocity of the project pipeline needs to be increased further, particularly of the mega road projects. Revamping the land acquisition policies will also have a significant impact on the progress. Tightening the implementation of dispute resolutions to better defined timelines is needed. In ports, the continuing uncertainty in iron ore and coal exim impacts bankability of bulk handling terminals. Airport sector needs to build on the initial progress, while railways and urban infrastructure need to seriously get on to the PPP bandwagon by evolving suitable models. A comprehensive package — covering policy, institutional and fiscal measures — is required for private sector participation in affordable housing projects.

With Rs 3,200 crore successfully mobilised through long-term infrastructure bonds, there is a case for increasing the limit of Rs 20,000 to channel more through this route. Absence of a vibrant bond market continues to be a hurdle to adequately utilise this route to reduce the asset-liability mismatch issue. However, bridging the projected $80-billion gap in debt finance will necessarily need to attract foreign debt sources. A credit-enhancement mechanism that enables piercing the country’s rating is a necessary adjunct for the proposed infrastructure debt funds to deliver on this.

Manish Agarwal
Executive Director and Head Infrastructure Advisory – PwC India