INFRASTRUCTURE SECTOR

India spends over 4 per cent of GDP on infrastructure, according to Oxford economics, as opposed to China, which spends about 6 per cent of GDP. To achieve UN sustainable development targets, India needs to invest at least 1.5 trillion more annually. Disputes between the government and vendors over infrastructure contracts often result in delivery delays and cost escalations.

On 1^st February 2021 the Union Budget of India for 2020-21 was presented. It was led by Indian FM Nirmala Sitaraman and is the first one to be paperless due to the Covid Pandemic situation!

Let us look at the government budget’s exclusive Infra reports:

• The Government has extended its ₹ 111 lakh crore ($1.5 trillion) national infrastructure pipeline so that by 2025 it can cover more projects to shore up economic growth as the nation recovers from the pandemic caused recession.

• The National Infrastructure Pipeline, with 6,835 projects initiated, has now grown to 7,400 projects. Under some main infrastructure ministries, approximately 217 projects worth Rs 1.10 lakh crore have been completed.

• The programme would need an increase in both government and finance sector support, she added. The government is planning to take three concrete measures for this purpose:
  • Creating structural framework Great traction on asset monetization Rising the proportion of capital expenditures in central and state budgets
  • Large thrust on asset monetisation
  • Increase in federal and state budget allocation in capital spending

• To draw investment and make India a $5 trillion economy, building new highways, rail links and other social and economic infrastructure is crucial. The NIP, collectively sponsored by the central government (39%), the state government (40%) and the private sector (21%), aims to invest in projects across sectors such as electricity, social and business infrastructure, connectivity, water and sanitation.

• In addition, a new construction financing institution named the National Bank for Infrastructure and Growth Finance will be set up by the government. This will be set up on a Rs 20,000 crore capital base and in three years it will have a Rs 5 lakh crore lending target.

• The FM said, ““Infrastructure needs long-term debt financing. A professionally managed development financial institution is necessary to act as provider, enabler and catalyst for infrastructure financing”

Some of the other key announcements that the government announced with regards to the Infra-Sector:

• It will launch a nationwide monetisation pipeline of future brownfield infrastructure properties.
• To track progress and to provide investors with visibility, an asset monetisation dashboard will be developed.
• NHAI and PGCIL to build confidence in infrastructure investment to draw worldwide funds. Five operating roads are being moved to NHAI InvIT with an approximate enterprise value of Rs 5,000 crore.
• Transmission reserves to be transferred to PGCIL InvIT to the amount of Rs 7,000 crore
• Rs 5.54 lakh crore for 2021-22 – a sharp rise in capital spending, which is 34.5 percent higher than the 2020-21 budget forecast.
• To have more than Rs 2 lakh crore for the capital spending of states and autonomous bodies.
  
  Gross budget funding for capital spending was substantially increased to Rs 5,54 lakh crore in 2021-22 BE (up 34% from 2020-21 BE and 26% from 2020-21 RE), with a higher allocation to the infrastructure market (roads, railways, etc).

The Union Budget has declared the creation of a new DFI with a capital of Rs.20,000 crore to increase the funding availability for the infrastructure sector. The goal of this organization is to finance and provide the infrastructure sector with debt more than Rs 5 lakh crore over the next three years, thus helping to bridge the infrastructure funding gap. The funding of infrastructure projects in India is primarily from the banking sector and a few NBFCs for infrastructure.

The Union Budget also provided the NIIF with Rs 5,000 crore, which would enable it to acquire infrastructure properties. Apart from this, the NIIF Infrastructure Debt Financing Mechanism was provided with another Rs 1,000 crore funding, which could be leveraged to provide the sector with substantial debt financing. The NIIF debt platform plans to develop a Rs 1 lakh crore debt portfolio by 2025 with the government’s funding of equity capital and the NIIF Strategic Opportunities Fund and future private sector equity involvement.

TDS on distributions were also removed from the budget by the InvIT, which would reduce the enforcement conditions of unit holders/investors. InvITs have a great ability to draw long-term capital to invest in secure assets for operating facilities and have a constant supply of longer-term cash flows.