Blue Economy 2.0 and Sagarmala program | Infrastructure finance update, March 2024

The spotlight shines on transformative initiatives as Finance Minister Nirmala Sitharaman unveils the Blue Economy 2.0 and bolsters the Sagarmala program in the interim budget for 2024-2025. Meanwhile, a surge in investments radiates across union territories and states, with Dadra and Nagar Haveli, Daman and Diu, Jammu and Kashmir, Rajasthan, Haryana, and Uttar Pradesh witnessing monumental infrastructure strides.

However, amidst this development, challenges loom. Concerns arise over potential exploitation in the Blue Economy project- coastal erosion and accretion due to dredging, and construction, along with declining rights of access to commons-while cost overruns in infrastructure projects prompt fiscal apprehensions. Additionally, contentious projects like the Vadhvan Deep Sea Port encounter resistance from local communities.

Amidst these challenges, infrastructure financing is seeing strategic endeavors continuing from the government owned financial intermediary institutions such as National Bank for Financing Infrastructure Development (NaBFID) setting ambitious targets for infrastructure financing,  Housing and Urban Development Corporation (HUDCO) seeking Infrastructure Finance Company (IFC) status for cheaper funds and Rural Electrification Corporation (REC) Limited, a Non Banking Finance Company (NBFC) embarks on a transformative journey through a Memorandum of Understanding (MoU) with the Government of Rajasthan, promising a substantial boost to infrastructure development across various sectors.

Blue Economy 2.0 and Sagarmala Take Center Stage

Finance Minister Nirmala Sitharaman announced the launch of the Blue Economy 2.0 program in the interim budget for FY 2024-2025. This initiative aims to harness the economic potential of oceans, sea, and coastal areas while emphasizing restoration and adaptation measures in the same. 

According to a note on the demand of grants, for FY 2024-2025, an amount of Rs 700 crore has been allocated to the Sagarmala program, which aims to connect Indian ports and industrial clusters through an efficient transport network.

But what needs to be taken into account is, the blue economy project runs the risk of giving rise to another frontier of exploitation. Even grassroot organizations like National Fish workers’ Forum and National Alliance of People’s Movements (NAPM) have mentioned that various projects under the Sagarmala Programme are being approved without any thoughts on the effects it can have on the fishing communities who are settled along the coasts.

Investment Surge Across Union Territories, and States

Several infrastructure projects were unveiled across different regions, including the union territories of Dadra and Nagar Haveli, and Daman and Diu, along with Jammu and Kashmir. The states of Uttar Pradesh,  Haryana, and Rajasthan also witnessed huge investments in infrastructure.

• Dadra and Nagar Haveli, Daman and Diu: These union territories witnessed project inaugurations worth Rs 191 crore (Daman), Rs 340 crore (Diu), and Rs 1,916 crore (Dadra and Nagar Haveli). The plan covers important areas like transportation, healthcare, schools, and cities.
• Jammu and Kashmir: The state launched a multitude of development initiatives valued at Rs 30,500 crore, spanning education, railways, aviation, and roads.
• Rajasthan: Under the ‘Viksit Bharat Viksit Rajasthan’ program, the state saw project releases worth Rs 17,000 crore, covering roads, railways, solar energy, and essential  services. Highway infrastructure projects worth Rs 5,000 crores were inaugurated; railway projects worth Rs 2,300 crores were initiated; power transmission projects exceeding Rs 2,100 crores were dedicated; and projects under the Jal Jeevan Mission worth approximately Rs 2,400 crores were inaugurated. 

The government led by the Bharatiya Janata Party in Rajasthan is also exploring innovative financial strategies, such as public-private partnerships (PPP), to procure additional funds for the enhancement of road infrastructure. Among the options under consideration are infrastructure investment trusts, asset monetization, and corporate responsibility frameworks.

• Haryana: The state inaugurated various infrastructure projects totaling over Rs 9,750 crore, focusing on healthcare, transportation, and tourism. Key projects include the Gurugram Metro Rail project (Rs 5,450 crore) and a new AIIMS institute in Rewari (Rs 1,650 crore). 

The 28.5-kilometer metro line is expected to be operational within four years. The Haryana Mass Rapid Transport Corporation Limited (HMRTC), a 50:50 Special Purpose Vehicle, between the Indian and Haryana governments, will be responsible for building the metro.

The All India Institute of Medical Sciences will be  built at a cost of Rs 1,650 crore, and it will occupy 203 acres in Majra Mastil Bhalkhi village in Rewari district. 

• Uttar Pradesh: Similar to January 2024 hosting the Vibrant Gujarat Summit, February marked the 4th Ground Breaking ceremony of the UP Global Investors Summit, preceding the 2024 Lok Sabha elections. The summit unveiled a portfolio of 262 projects valued at over Rs 500 crores, along with an additional 889 industrial projects ranging from Rs 100 to 500 crores. 

But it’s noteworthy that Uttar Pradesh has experienced a significant surge in the aggregate costs of projects sanctioned by Banks and Financial Institutions. From the fiscal year 2013-14 to 2022-23, the state has witnessed a staggering increase of 268.18% in this regard.

Now, while the government has been approving a large number of infrastructure projects in the light of the upcoming general elections, there is also a downside to this. A recent article in the

Economic Times reported that in December 2023, more than 431 out of 1820 infrastructure projects (each costing over Rs 150 crore) experienced cost overruns exceeding Rs 4.82 lakh crore. This means that these projects are now more expensive to complete than originally planned. The significant cost overruns are definitely not good for the fiscal health of the country.  According to an article in Business today, the cost overruns account for 44.06% of the funds reserved for capital expenditure for the financial year 2023-2024. 

Clearance granted to Vadhvan Deep Sea Port Project

On 6th of February, an expert appraisal committee,  under the Ministry of Environment, Forests, and Climate Change, has granted the environmental, and coastal regulation zone clearance for building a largest deep draft port at Vadhvan, near  the eco-sensitive zone of Dahanu taluka, in Palgarh district, Maharashtra. This project is estimated to cost Rs 76,000 crore, with a cargo capacity of 298 million tons. 

The Jawaharlal Nehru Port Authority (JNPA) and the Maharashtra Maritime Board (MMB) would jointly develop the port through a special purpose vehicle (SPV), Vadhvan Port Project Ltd. JNPA would hold a majority stake (74%) in the venture.

The Vadhvan Port Project is set to incorporate an extensive array of infrastructure components, overseen by Vadhvan Port Project Ltd (VPPL) with an investment totaling Rs 43,622 crore. These components include:

• Extensive Breakwater: A colossal 10.14-kilometer breakwater will provide protection from waves and currents to the port.
• Dredging and Reclamation: Dredging activities will deepen the seabed to accommodate the port, while reclaimed land will be created to accommodate additional facilities.
• Shore Protection Bund: A protective bund along the shore will be constructed to mitigate erosion risks.
• Tug Berth and Approach Trestles: A dedicated berth for tugboats will be erected, alongside access trestles leading to the port.
• Developed Land: Preparations will be made for the development of unpaved land for future expansion.
• Transportation Network: A comprehensive rail line and road network will be established to integrate the port with the mainland transportation system. This will include an off-dock rail yard, a rail exchange yard, and internal roads within the port complex.
• Utilities: Infrastructure for power and water supply will be implemented to sustain port operations.

Private operators will assume responsibility for developing supplementary facilities atop this foundational infrastructure. VPPL will select operators for container terminals, multipurpose berths, coastal cargo berths, RO-RO (roll-on/roll-off) facilities, and liquid cargo terminals.

However, the project has encountered opposition from local villagers who complained of the port’s non-compliance with the Environmental Impact Assessment (EIA) guidelines.

NaBFID Sets Ambitious Target and Receives Strategic Advice

On February 29th, 2024, Finance Minister Nirmala Sitharaman met with officials from the NaBFID to review their performance. During the meeting, an ambitious target of sanctioning Rs 3 lakh crore for infrastructure projects by March 2026 was set. NaBFID has already  approved over Rs 86,804 crore for projects in diverse sectors like roads, renewable energy, ports, railways, water & sanitation, and city gas distribution.

The Finance Minister provided strategic guidance to NaBFID, urging them to implement two key initiatives:

• Boosting Bond Market Participation: NaBFID was advised to introduce a “structured partial credit enhancement facility.” This financial tool helps make bonds issued by Urban Local Bodies (ULBs) and Municipalities more appealing to investors. It works like a guarantee – if a ULB/Municipality can’t repay the bond, this facility would cover a portion of the loss. This improves the creditworthiness of the bonds, making them a more attractive investment with potentially lower interest rates.
• Enhancing Infrastructure Data Accessibility: The Minister also emphasized the importance of creating a data repository for India’s infrastructure sector. This centralized database would store information about various infrastructure projects, allowing investors to better assess risks and potential returns before investing. This data repository would complement existing initiatives like the National Infrastructure Pipeline and PM-Gati Shakti by providing more granular details on specific projects.

EY Convenes Infrastructure Leaders to Chart India’s Growth Path

On February 2nd, 2024, Ernest and Young (EY) brought together key players in India’s infrastructure sector for a dynamic roundtable discussion. This gathering of industry heavyweights delved into the latest trends shaping the landscape and explored strategies to unlock further investment.

A key takeaway emphasized by senior executives was the need for companies to stand out from the crowd. Differentiation is crucial to attract capital and propel infrastructure development in India.

The discussion also explored innovative financing options, with the Gujarat International Finance Tech (GIFT) city model emerging as a compelling alternative for attracting Foreign Direct Investment (FDI) into Indian infrastructure projects.

IIFCL proposes to include Space sector in the infrastructure sector

State-run infrastructure lender, India Infrastructure Finance Corporation Limited (IIFCL), recently proposed including the space sector under the infrastructure umbrella. This comes after IIFCL disbursed nearly ₹18,000 crore in loans and provided financial advisory services to Indian Space Research Organisation (ISRO) in FY 24. Additionally, the government relaxed FDI regulations in March, allowing up to 74% FDI in satellite manufacturing, operations, data products, and ground and user segments.

HUDCO Seeks Infrastructure Finance Status for Cheaper Funds

India’s Housing and Urban Development Corporation (HUDCO), a state-owned non-bank lender, is aiming to become an Infrastructure Finance Company (IFC). This move would allow HUDCO to access cheaper sources of funding and reduce borrowing costs. Their application is with the RBI, and approval is expected within a few months. To qualify as an IFC, at least 75% of a company’s assets must be dedicated to infrastructure projects.

REC Limited enters into a MoU with the Government of Rajasthan 

On 10th of March, 2024, REC Limited, a Maharatna Central Public Sector Enterprise (CPSE) and a prominent NBFC under the Ministry of Power, has entered into a Memorandum of Understanding (MoU) with the Government of Rajasthan to extend financial support to projects spanning both power and non-power infrastructure sectors. 

According to the terms of this agreement, REC Limited will allocate loans amounting to Rs 20,000 crores annually over the next six years to various departments, undertakings, institutions, and schemes administered by the Government of Rajasthan.

This collaboration is anticipated to catalyze a rapid surge in infrastructure projects within the state, encompassing areas such as power generation, metros, roadways, airports, IT infrastructure, oil refineries, steelworks, ports, waterways, fiber optics, telecommunications, healthcare facilities, tourism infrastructure, agricultural ventures, and other related initiatives.

In conclusion, India’s infrastructure push is necessitated for long-term economic growth. However, the current approach resembles a high-speed chase with unbuckled seatbelts. Unless the policy makers prioritize environmental sustainability, financial prudence, and social justice, this infrastructure boom risks becoming a bust in the coming decades. More careful planning, stricter oversight, and genuine community engagement are essential to ensure India’s infrastructure development delivers lasting benefits for all.