It is being emphasised quite often that the infrastructure sector is a crucial driver for the Indian economy. The sector would be responsible for propelling India’s overall development and enjoys intense focus from the Government for initiating policies that would ensure time-bound creation of world-class infrastructure in the country. Infrastructure sector includes power generation and transmission, highways, ports, bridges, dams, industrial zones, railway freight corridors, inland waterways and urban infrastructure development including smart cities, housing, water supply and sanitation.

The Government of India’s Economic Survey, 2017 – 2018, says that to ensure high and sustainable growth, there has been a substantial step up of investment in infrastructure mostly on transportation, energy, communication, housing and sanitation and urban infrastructure sector. However, the Global Infrastructure Outlook reflects that rising income levels and economic prosperity is likely to further drive demand for infrastructure investment in India over the next 25 years. Around US$ 4.5 trillion worth of investments are required by India till 2040 to develop infrastructure to improve economic growth and community wellbeing. The current trend shows that India can meet around US$ 3.9 trillion infrastructure investment out of US$ 4.5 trillion. The cumulative figure for India’s infrastructure investment gap would be around US$ 526 Billion by 2040.

The Economic Survey, adds that there was massive under-investment in infrastructure sector until the recent past when the focus shifted to invest more on infrastructure. The reasons behind the shortfall in investment were: the collapse of Public-Private Partnership (PPP) especially in power and telecom projects; stressed balance sheet of private companies; issues related to land and forest clearances. The need of the hour is to fill the infrastructure investment gap by financing from private investment, institutions dedicated for infrastructure financing like National Infrastructure Investment Bank (NIIB) and also global institutions like Asian Infrastructure Investment Bank (AIIB), New Development Bank (erstwhile BRICS Bank) which is focusing more on sustainable development projects and infrastructure projects.

It further discusses the details of estimated requirements and budget outlays for various sectors required to build such infrastructure in roads transport and highways, Bharatmala Pariyojana, railways, metro rail systems, civil aviation, shipping, Sagarmala programme, Inland waterways, telecom, power and energy, logistics sector, petroleum and natural gas and housing for all.

The International Finance Corporation (IFC) of the World Bank Group has also brought out a recent analysis of the climate-smart investment opportunities in infrastructure sectors like renewable energy, transportation, climate-smart water supply, solid waste management, green buildings, climate-smart agriculture and large hydro. The estimated investment opportunities in India is US$ 3.1 trillion from 2018 to 2030.

A similar report by Asian Infrastructure Investment Bank (AIIB) on infrastructure finance released recently in 2019, states AIIB’s priority is to mobilise private capital into infrastructure. It has a focused mandate on infrastructure project financing, and it does not offer concessionary funding. It says that AIIB will try to develop a high degree of flexibility in financing through various instruments. Also, its strategy on mobilising private capital for infrastructure (2018) spells out its vision as a bank that will help develop emerging market infrastructure as an asset class.

It is also being indicated that the failure of the PPP model to deliver on various aspects has to lead the government to look to finance projects through models like Hybrid Annuity Model (HAM),  which is a combination of the EPC (Engineering, Procurement and Construction) model and BOT-Annuity (Build, Operate, Transfer) model; government fully serviced bonds; station redevelopment; private investment; foreign direct investment; Infrastructure Investment Trusts route; LIC; Long Term Pension Funds; etc. This is in addition to the financial support from the national and international financial institutions.

Similar, policy recommendations to finance these mega projects are being made by national and international financial institutions like the World Bank, Asian Development Bank, International Finance Corporation, Asian Infrastructure Investment Bank and others in their country strategy documents, infrastructure development reports and analysis of the investments required.

The announcements made by the Government of India in Union Budget 2018-19 indicate the way forward in the coming future:

  • A massive push to the infrastructure sector by allocating Rs 5.97 lakh crore (US$ 92.22 billion) for the sector.
  • Railways received the highest ever budgetary allocation of Rs 1.48 trillion (US$ 22.86 billion).
  • Rs 16,000 crore (US$2.47 billion) towards Sahaj Bijli Har Ghar Yojana (Saubhagya) scheme. The scheme aims to achieve universal household electrification in the country.
  • Rs 4,200 crore (US$ 648.75 billion) to increase the capacity of Green Energy Corridor Project along with other wind and solar power projects.
  • Allocation of Rs 10,000 crore (US$ 1.55 billion) to boost telecom infrastructure.
  • A new committee to lay down standards for metro rail systems was approved in June 2018. As of August 2018, 22 metro rail projects are ongoing or are under construction.
  • Rs 2.05 lakh crore (US$ 31.81 billion) will be invested in the smart cities mission. All 100 cities have been selected as of June 2018.
  • India’s national highway network is expected to cover 50,000 kilometres by 2019. National highway construction in India has increased by 20 per cent year-on-year in 2017-18.

However, in spite of all the discussions about the enormous amounts of investments required there has been little discussion regarding the implications of these massive investments and projects on the local communities, natural resources as well as the environment. Critical concerns such as infrastructure for whom and where have been mainly ignored and public consultations with communities missing. More importantly, the investments from IFIs have some environment and safeguard policies to comply with. But these have been missing on the part of the domestic financial institutions, private investors and financial intermediaries which are being rapidly created and increasingly used to finance these projects. Most of the finances coming from these institutions do not observe the transparency and accountability mechanisms.

Notwithstanding, the problems and failure of PPP model for infrastructure development as noted in reports of various agencies, PPPs are being promoted by various government and international agencies to implement these mega infrastructure projects. The problems of financing and operationalising PPP contracts in roads, power, water supply, sanitation have been well documented not only in India but across many other countries. Regardless of these experiences and evidence, the PPP model is strongly recommended for more such projects. The World Bank Group Country Partnership Framework for India states that to leverage private finance, increasing focus on facilitating private sector solutions to development challenges including steps such as advisory and lending support for PPP transactions. Similarly, ADB, AIIB and IFC look to increase and extend support PPP transactions.

However, the PPP model is being used increasingly as a mechanism to link infrastructure projects to financial markets and financialisation of infrastructure i.e. increasing use of financial markets based instruments like exchange-traded funds, index funds, infrastructure funds, private equity funds, wealth funds, etc; financial instruments like collateralised debt obligations (CDOs), credit default swaps (CDS); derivatives like forwards, futures, options or swaps to invest funds for infrastructure development rather than tax revenues and loans from public development institutions. This is leading to infrastructure development for the creation of revenue streams for the investors rather than infrastructure based on the needs and demands of the local communities or public welfare. In all likelihood, market-based instruments and agencies would be deciding what, where and for whom the infrastructure would be built depending on the profitability from the investments being made.

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