Infrastructure Finance Update | January 2024

In the realm of infrastructure, this January 2024 has been marked by significant developments, including recent announcements in the interim budget like increased budgetary allocations for the infrastructure sector, the business summit held in Gujarat, progress on the world’s largest renewable energy park in Khavda, Rann of Kutch and a series of advancements in the blue economy and inland waterways along India’s coastal regions in infrastructure projects and aspects such as protection and insurance indemnity for shipping industry.

In the fiscal year 2024 budget, the finance minister earmarked approximately Rs 10 lakh crore for infrastructure capital expenditure, representing a 33 percent increase compared to the previous year. In the interim budget of the fiscal year 2024-25, the allocation for the budget has been increased by 11.1% to a sum of Rs 11 lakhs, 11 thousand, one hundred and 11 Crores. In this case, it’s important to note that such massive investments in infrastructure are geared towards the aim of competing with China as a global manufacturing hub. To reach this objective, the government aims to boost public investment to attract private funds. However, this strategy also raises concerns about escalating the debt-of-GDP percentage. India’s current debt stands at 85% of its GDP, a figure that could potentially surpass 100% by FY 28 as projected by the International Monetary Fund.

In the apparent transformative shift towards the path of sustainable growth in India green infrastructures have a huge amount of currency. Till recently India housed the world’s largest solar power park at Bhadla, in the Jodhpur district of Rajasthan, producing 2.25 GWs of solar energy. But it will soon be surpassed by the hybrid renewable energy park, named Khavda Renewable Energy Park, situated in the salt marshes of Rann of Kutch, Gujarat, bordering Pakistan. Almost the size of Singapore spreading over 726 sq. kms, once completed it is supposed to supply 30 GWs of energy. While the renewable energy project is intended to contribute to India’s goal of reaching 500 GWs of energy generated from renewable sources by the end of the decade, it has sparked concerns among various environmental experts.

Although recognizing the significance of shifting towards renewable energy, environmental experts and social activists argue that India’s choice to permit clean energy projects without conducting environmental impact assessments is likely to yield negative repercussions. In India solar, and wind energy projects have been exempted from the mandatory environmental clearance procedures.

While the Rann of Kutch region in Gujarat gears up for the development of the world’s largest renewable energy park, approximately 270 kilometers southeast, the nation witnessed its largest-ever global trade show at GIFT City in Gandhinagar, Gujarat. The Vibrant Gujarat Summit witnessed MoUs inked for investments worth Rs 26.33 lakh cr for 41,299 projects.  Presently the state has investments worth 45 lakh crores, across 98540 projects. The biennial summit drew significant investments in various sectors such as green hydrogen, renewable energy, e-mobility, semiconductors, and financial services, including fintech, at the GIFT City.

Breaking down the investment in the state of Gujarat over the past five years, from FY 2019-2020 to FY 2023-24, the oil and gas sector has emerged as the top recipient, attracting Rs 17.6 lakh crore. Following closely behind are sectors such as chemicals, petrochemicals, and large projects under the Gujarat Industrial Development Corridor, which received Rs 5.34 lakh crore. Additionally, investments flowed into engineering, automotive, and other industries to the tune of Rs 5.24 lakh crore, urban development with Rs 3.7 lakh crore, and financial services with Rs 2.2 lakh crore.

During the Summit, Gujarat was hailed as the Gateway of Modern India’s growth. However, this gateway appears to overlook the plight of the population residing along Gujarat’s 1,660 kilometres of coastline. According to an article by The Wire in 2018, Gujarat’s coastline has been subjected to an influx of industrial corridors over the past decade. Nearly 60% of Gujarat Industrial Development Corporation (GIDC) projects are situated along the coastline, encompassing petrochemical units, refineries, thermal power plants, cement and rayon factories, and ship-breaking industries. Inadequate compliance monitoring of these projects has adversely impacted the marine habitat in the region, leading many fishermen to venture further into the sea. According to the conflict database of Land Conflict Watch, Gujarat currently faces 8 ongoing  land  conflicts, affecting over 300,000 people and a land area exceeding 300,000 hectares.

In terms of coastal infrastructure development in India, the beginning of the year has seen several significant announcements and inaugurations.

On January 8th, a project focused on the modernization and upgrade of the Paradip fishing harbour commenced. With an estimated cost of Rs. 108.91 crores, this project receives 100% central financial assistance under the Pradhan Mantri Matsya Sampada Yojna in collaboration with the Ministry of Ports, Shipping and Waterways under the Sagarmala Scheme.

Simultaneously, on the same day, the Union Minister of Ports, Shipping, and Waterways unveiled a Rs. 45,000 crore investment plan for the development of inland waterways and river cruise tourism during the inaugural session of the Inland Waterways Development Council meeting in Kolkata. This comprehensive investment includes Rs. 35,000 crores for cruise vessels and Rs. 10,000 crores for terminal infrastructure development, with a target to significantly boost cruise tourism traffic with overnight stays and augment cargo trade via inland waterways. The government targets a growth rate exceeding 400% and aims to increase the volume of trade to 500 million tonnes per annum by 2047.

Also, Prime Minister Narendra Modi inaugurated projects worth Rs. 4000 crores in Kochi on January 17th. These projects include a New Dry Dock (NDD) at the Cochin Shipyard, the world’s first of its kind. Additionally, Asia’s largest International Ship Repair Facility (ISRF) and an LPG Import Terminal by the Indian Oil Corporation were inaugurated at Puthuvypeen. These infrastructures are anticipated to reduce India’s reliance on foreign nations for shipbuilding and repair services and ensure a consistent and uninterrupted supply of Liquid Petroleum Gas, thereby enhancing the country’s overall energy security.

Furthermore, within the realm of coastal infrastructure, India is exploring the establishment of its own protection and indemnity (P&I) insurance entity. This initiative aims to provide shipowners, particularly those based in India, with access to insurance options that are mostly dominated by major Western players.

Now, despite the promotion of extensive coastal development as part of the blue economy program, it’s crucial for the government to consider India’s ranking as the third-most affected country by climate change among the top 50 nations. Coastal regions are vulnerable to various land and marine hazards such as shoreline erosion, tropical cyclones, and storm surges. It’s also important to note that climate-related extreme weather events have cost INR 3,65,860 crore in damages to infrastructure and housing, equivalent to three percent of India’s GDP.

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