Even as finance Minister Nirmala Sitharaman has asserted the importance of infrastructure in economic growth, apprehensions have been raised about subdued private sector investments in the space. In Budget 2023-24, she has allocated capex of Rs 10 lakh crore, the highest in more than a decade.
Experts such as Rishi Agarwal, MD-India & Head-Asia at consultancy FSG, attribute the low level of private sector participation to a challenging economic environment. “It comes back to what the cost of capital looks like. And, also... there is a clear view of a recessionary market shortly,” he says. Agarwal points out how sunrise sectors such as EVs and green energy have attracted sizeable private capital due to the government’s policy support and incentives.
Theoretically, the private sector has to supplement the government’ investments in infrastructure. But government investments will still need to be there to provide momentum for private investments, says P.R. Jaishankar, MD of Indian Infrastructure Finance Co. Ltd, the government-owned infrastructure financier. “Till FY14, we were trying to push the public-private partnership (PPP) model,” he adds. The model has resulted in several marquee projects such as the Bandra-Worli Sea Link in Mumbai, the Pune IT City Metro and the upcoming mega airports at Noida and Navi Mumbai.
Besides, non-banking financial companies and international finance corporations have overtaken commercial banks as the largest source of funds for infrastructure projects. “Today, over 60 per cent of the infrastructure funding is being contributed by them,” says Jaishankar. Also, following the announcement of the National Monetisation Pipeline, the funding ecosystem has expanded to include instruments like infrastructure investment trusts and infrastructure debt funds.
Meanwhile, the FM has also talked about an enabling mechanism for private sector investment in her speech. “The secretariat might look at credit guarantees and securitisation-cum-asset-backed securities (ABS). There are a lot of outstanding loans on the books of banks and NBFCs like Power Finance Corp. and the Indian Railways Finance Corp. If one can come up with a securitisation platform to restructure those loans and offer them as ABS to institutional and private investors, that could be a good way out,” says Arindam Guha, Partner-Government and Public Services Leader at Deloitte India. Similarly, the setting up of a credit guarantee facility to raise the credit perception of PPP projects would enable private players to raise long-tenure loans. “When you have projects qualifying under the mechanism, their ratings will improve to attract investments from domestic pension funds,” says Guha.
Will these steps help attract private capital investments into infrastructure? The caveat: infrastructure has a long gestation period.
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