FinMin tasks World Bank with examining financing in infrastructure sectors

The Union finance ministry has tasked the World Bank with examining financing in infrastructure sectors that primarily depend on public investment, like railways, roadways, urban infrastructure, and power. The multilateral institution is expected to submit detailed reports on how the Centre can attract more private investment into these sectors.

Union Finance Minister Nirmala Sitharaman had said in the 2023 Union Budget that the Infrastructure Finance Secretariat will assist all stakeholders in attracting more private investment in infrastructure.

“The World Bank will do a deep dive into each of these sectors, and meanwhile we are also engaging with the line ministries. The reports will be submitted to us from May and the bank will suggest innovative financing structures to attract more private investment,” a senior government official said.

“In the course of this process we will also consult with all stakeholders including infrastructure companies and financing institutions,” the official said.

In multiple sector-specific reports, the World Bank is expected to lay down suggestions on developing a holistic ecosystem for infrastructure financing lifecycle approach, innovative financing structures, sector-specific financing interventions, strengthening sectoral policy frameworks, and ways to boost asset monetisation.

The four sectors mentioned by Sitharaman in her Budget speech come with their own set of challenges, per the World Bank’s assessment. The energy sector faces high financial deficit at power distribution companies, inadequate flows and taxation challenges.

For roads and highways, challenges include ambitious targets with long gestation periods, legacy problems due to earlier stressed assets, and project delays due to land acquisition, alignment and clearances.

Urban infrastructure suffers from low or non-sustainable pricing of services, driven by political considerations, negligible private sector participation, mainly due to viability issues, and poor capacity at urban local bodies. Railways faces issues like limited internal resources to finance capital and revenue expenditure, cross-subsidising passenger fares through high freight tariffs, and an institutional structure which is a hindrance to catalysing private capital.

Behind the push for increased private sector participation in these sectors is the fact that the share of the private sector declined from 37 per cent in FY08 to 25 per cent in FY19.

With the private sector capex just now witnessing a rebound after two years of Covid-19 pandemic and one year of the Russia-Ukraine war, the Centre is continuing with its capex push. For FY24, the budgeted capex target is Rs 10 trillion, compared with FY23 Revised Estimates of Rs 7.3 trillion, a jump of 37 per cent. The Rs 10 trillion includes Rs 1.3 trillion in the long term, interest-free loans to states for their capex needs.

Finmin Push

Centre taps World Bank to examine railways, roads, power, urban infra

World Bank to suggest models to attract more private investment in these sectors

World Bank to submit sector-specific reports to FinMin

The FM had announced the intention to get more private funds in these sectors

FinMin to interact with line ministries, financing agencies, infra firms