Indian Union Budget 2021-22: Union Budget 2021-22 has clearly met most of the expectations about infrastructure improvement and financing. In addition to an more than 25% raise in the budgetary outlay for infrastructure improvement, it has announced the setting up of a Development Finance Institution (DFI), backed by government assistance and initial capital contribution. As a next step to the National Infrastructure Pipeline (NIP), an initiative to build a National Monetisation Pipeline has been launched and certain asset categories for monetisation like the Indian Railways-promoted committed freight corridors referred to as out. Separately, a particular goal automobile (SPV) for land monetisation has also been announced. These measures clearly have the prospective to address most of the challenges becoming faced in infrastructure financing today. However, a lot will rely on how correctly they are implemented on the ground.
Let us start out with the DFI announcement in the Budget. As per the NIP, DFIs funded 20-25% of the annual infrastructure devote of about Rs 7-12 lakh crore through 2013-2018. DFI financing has, nonetheless, been focused on certain sectors like energy and railways, exactly where institutions like PFC, IRFC, and so on. have contributed 40-50% of total investments. Also, when 30% of NIP investments are in sectors below State (even nearby) Government jurisdiction, the quantity of DFIs at the State level have been very restricted. To address these limitations, the proposed DFI(s) could want certain concentrate on sectors like urban infrastructure, agriculture/ irrigation, overall health and education. A regional or state-certain construct could want to be explored, with appropriate governance arrangements and monetary participation from State governments via mechanisms like land monetisation.
Coming to asset monetisation, the concentrate to date has been largely on sectors like energy and roads/highways, with financing models and structures like toll-operate-transfer (ToT) and infrastructure investment trusts (InvITs) becoming deployed. Going forward, these models will have to be extended to sectors like the railways and urban infrastructure/transport (Metro railway projects for instance). Accordingly, the correct asset monetisation model would want to be chosen, with a prospective re-examination of the underlying regulatory & tariff framework, bid course of action-associated activities and terms of concession/contract. Also, for InvITs promoted by government agencies, as in the case with Power Grid Corporation and NHAI, it would be vital to appoint qualified investment managers backed by an proper governance structure.
Finally, the SPV for land monetisation announced in the Budget would want to have appropriate monetary, management and institutional structures if person ministries, Central PSUs, and State and nearby governments are to be correctly supported. The SPV would want to be backed by a transparent policy framework outlining its mandate, collectively with recommendations on the whole land monetisation lifecycle, from identification of surplus land and determination of optimum finish use to bid course of action management and creation of the underlying contractual framework. The initiative could want to be aspect of a scheme wherein the services of the SPV as properly as certain financing assistance (guarantees or extended term loans for infrastructure projects) are created out there to participating State governments. The proceeds from land monetisation could go to a separate fund for infrastructure improvement and be made use of by State governments to meet targetted budgetary outlays in infrastructure improvement.
As we can conclude from the above, when Budget 2021-22 does set the correct path for infrastructure financing, it is the actual implementation of the proposals which will be important to results.
The writer is Partner and Leader – Government & Public Services, Deloitte India