Infrastructure Finance Update- December 2023

In December 2023, the Asian Development Bank made significant investments in infrastructures focused on Climate Resilience and Connectivity. Additionally, there were investments in enhancing infrastructural connectivity, including the development of national waterways, a six-lane bridge in Bihar, and various projects in Ladakh for roadways and bridges. The month also witnessed state efforts to strengthen infrastructure in the North Eastern regions and Ayodhya, driven by distinct motivating factors, as detailed in the update below.

In the concluding month of 2023, the Asian Development Bank engaged in a series of financial commitments, comprising loans and grants. The focal areas of these investments predominantly spanned the Strengthening Climate Resilience and Corridor and Connectivity Development programs. A few of them are:

  1. Uttarakhand secured a loan of USD 200 million and a grant of USD 2 million for the Uttarakhand Climate Resilient Power System Development Project. This approved investment seeks to fortify the state’s power transmission and distribution infrastructure, expand coverage, enhance transmission network capacity, and establish a disaster and climate-resilient distribution system in Dehradun, Uttarakhand’s capital.
  2. The coastal states of Karnataka and Kerala received a technical assistance special fund totalling USD 2,250,000 to augment the Coastal and Climate Resilience Program. The funds will facilitate a preliminary assessment of two climate resilience investment projects, encompassing institutional evaluation, project implementation structure, capacity building needs, environmental and social safeguards assessment, identification of coastal erosion and flood risk hotspots, and suitable adaptation interventions.
  3. A loan of USD 250 million was approved to fund the initial corridor of the planned Regional Rapid Transit Network (RRTS)in the National Capital Region of India. This investment is aimed at connecting Delhi to Meerut in the state of Uttar Pradesh.
  4. A USD 250 million loan was invested to further fortify India’s National Industrial Corridor Development Program. The objective is to enhance the competitiveness of India’s manufacturing sector, establish functional industrial nodes and parks, and implement institutional reforms to attract private sector investment.

The India Infrastructure Report 2023, was unveiled on December 4th, and it has been jointly published by IDFC Foundation, Infrastructure Development Corporation (Karnataka) Ltd, and the National Institute of Urban Affairs (NIUA). The report emphasizes three main areas: i) leveraging digital technology for urban development, ii) emphasizing the role of urban transportation in effective urban governance and transit-oriented development, and iii) evaluating the effectiveness of Public-Private Partnerships (PPPs) and municipal bonds as robust financing tools. Over here, it’s important to highlight that PPPs have been an uncommon financial instrument in the urban sector.

These endeavours suggest the government’s commitment to reinvigorate the Public-Private Partnership model for financing infrastructure projects. It is crucial to acknowledge that, despite the NDA government presenting PPPs as a promising financial instrument, it is yet to effectively address India’s infrastructure deficit. In recent years, for the sake of enhancing the effectivity of PPP model, and luring private investors, there have been suggestions of sharing taxes with the private players as well.

 In this case, one should closely monitor the performance of the PPP model in the development and financing of urban infrastructure programs. Additionally, it is essential to question the extent to which these forms of urbanization- advocating for the collaboration of private players in the development of urban infra- can meet the necessity and affordability of lower-income groups residing in urban areas.

The apprehensions surrounding the PPP model become evident when confronted with the colossal debt, equivalent to 50% of Rs. 3.4 trillion, that the National Highways Authority of India is obligated to settle by 2030. This necessitates the institution to refrain from procuring substantial amounts of loans, a trend observed since FY22. The anticipated cost of servicing this debt is projected to reach Rs. 62,000 crore by FY28. Consequently, the Ministry of Roadways has purportedly requested a budget allocation of approximately RS. 3.25 trillion for FY25, with 60% earmarked for NHAI. This considerable burden on the government budget further underscores the challenging situation of the PPP model in the highway sector, characterized by a notable absence of private sector involvement.

Also, according to the Ministry of Statistics and Program Implementation (MoSPI), the institution responsible for monitoring infrastructure projects nationwide, 421 out of 1831 projects are experiencing an escalation in estimated costs, while 845 projects are facing delays in completion. The initial total cost of implementing these 1831 projects was Rs. 25,10,577.59 crores, and the revised cost has reached Rs. 29,50,997.33 crores, reflecting a 17.54% increase from the original estimate.

The MoSPI report also highlights that among these 1831 projects, 308 lack information on their year of commissioning or the tentative gestation period.

In a written response to a question raised during the winter session of the Rajya Sabha, G Kishan Reddy, the Union Minister for Development in the North Eastern region (MoDNER), underscored the substantial infrastructural advancements in India’s North Eastern regions. Over the past nine years, the Ministry of Road, Transport, and Highways has successfully completed the construction of highways spanning 4950 kilometers, incurring an expenditure of Rs. 41,459 crores.

Furthermore, the Ministry of Development of the North Eastern Region (MoDNER) has approved approximately 77 projects under the North East Special Infrastructure Development Scheme and North East Road Sector Development Scheme, totalling a value of Rs. 3372.58 crores.

While the ongoing infrastructural development in the North Eastern region is often linked to efforts for peace restoration, it is crucial to scrutinize the methods employed for such operationalizations. Notably, a significant disparity exists in infrastructural development across the region, with ethnic minorities experiencing poverty and a lack of basic facilities, in contrast to the more privileged access enjoyed by dominant ethnic groups. Moreover, the considerable influx of infrastructural development raises concerns about potential ecological disasters, especially considering the region’s susceptibility to frequent landslides and its classification under seismic zone III.

While The North-eastern region is undergoing significant infrastructural changes, a similar trend is observed in Ayodhya, where a greenfield township redevelopment plan with an Rs. 85,000 crore investment is envisioned. This plan involves developing 1200 acres of land over 5 years, with an initial investment of Rs. 2,200 crores. Simultaneously, Indian Railways is enhancing connectivity to Ayodhya through Vande Bharat trains. It’s crucial to note this infrastructural surge aligns with the increasing project funding in Uttar Pradesh since 2021. In this case, examining the various factors contributing to infrastructural development, including Hindutva ideology, financial institutions, and infrastructural planning, is necessary for a comprehensive understanding.

Lastly, in December, various initiatives aimed at enhancing regional connectivity have been introduced:

  1. The Indian government has announced the establishment of 111 National Waterways, with 106 being entirely new, to facilitate inland navigation. Covering 24 states, these waterways aim to boost connectivity and transportation through water routes. To accelerate development, the government has devised an action plan focusing on the most viable National Waterways, with an initial emphasis on 20 of them.
  2. A 4.5 km long, 6-lane bridge is set to be constructed across the Ganga River, linking the significant districts of Patna and Saran in Bihar. The project, sanctioned by the Cabinet Committee on Economic Affairs, is slated to be completed in 42 months. The estimated project cost is Rs 3064.45 crore, including a civil construction cost of Rs. 2,233.81 crore. The project will be implemented in the Engineering, Procurement, and Construction mode.
  3. On December 28th, the Minister of Road, Transport, and Highways shared on X (formerly Twitter) about a substantial investment of Rs. 1170.16 crores for 29 critical road projects in the union territory of Ladakh by the Ministry of Road, Transport, and Highways. Additionally, an amount of Rs. 181.71 crore has been allocated for 8 bridges under the Critical Road and Infrastructure Fund scheme (CRIF).

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