Stalled projects choke fresh private investments in infrastructure: Crisil

Infra spending slipped from 7% of GDP during 2008-2012 to 5.8% between 2013 and 2017; could fall further if private investments aren't spurred, says rating agency's report

A plethora of stalled projects in the infrastructure space has reduced investor interest and risk appetite in the sector, leading to a sharp fall in private investment in the last decade, says a Crisil report.

Between FY08 and FY17, private investments in infrastructure was estimated at Rs 20 trillion, or nearly a third of all infrastructure spending during the period. This has had a transformational impact in several sectors.

And by 2012, India’s public-private partnership (PPP) programme also acquired significant scale, Crisil Infrastructure Yearbook 2018 said.

“Resumption and broad-basing of private investments has become critical to sustain the share of infrastructure investments at  about six per cent of GDP over the medium-to-long term,” said Ashu Suyash, Managing Director and CEO, Crisil Limited. “This requires new PPP frameworks, expeditious resolution of stressed assets, and steps to deepen financing sources.”

However, since then, a raft of risks manifested, exposing lacunae in the PPP architecture, leading to a spike in stalled projects and stressed debt, which muted risk appetite in the private sector.

"Critical sectors such as railways and urban infrastructure have not been able to make fast-enough progress to attract private monies despite their size and potential, while viability of power distribution remains critical to the sector value chain," it said.

Infrastructure spending declined from seven per cent of GDP during 2008-2012 to about 5.8 per cent between 2013 and 2017. It could fall even more if private investments aren’t spurred, the report added.

A material ramp-up in government spending the past few years has meant the share of private sector investments in infrastructure has fallen to a decadal low of around 25 per cent in fiscal 2018. The share, which averaged 37 per cent between fiscals 2008 and 2013, fell 600 basis points (bps) between fiscals 2013 and 2017 as a plethora of stalled projects and stressed assets reduced investor interest and risk appetite.

While the highway sector has seen a revival in public private partnerships (PPPs), and the renewables sector, some buoyancy, private investments in other infrastructure segments have remained stagnant or weak.

Infrastructure investments have a positive impact on economic growth, productivity and competitiveness is well-established. But accelerating India’s infrastructure investment to about six per cent of GDP over a medium-to-long-term has become vital. While increases in public spending remain necessary, they won’t suffice.

A revival and sustainable acceleration of PPPs in infrastructure is the need of the hour. This will require redrawing of the PPP framework in double-quick time and paving the path for private investments.