The National Infrastructure Pipeline (NIP), which was published in December 2019 by the department of economic affairs, has for the first time attempted to do a comprehensive list of infrastructure projects with outlays of over Rs 100 lakh crore.

Future infrastructure developments are largely focused on the quality of life and ease of living. Sectors such as roads (estimated investment of Rs 20 lakh crore), urban & housing (Rs 17 lakh crore), railways (Rs 14 lakh crore), conventional power (Rs 12 lakh crore) and renewable energy (Rs 9 lakh crore) together account for over 70 per cent of the total envisaged investment of over Rs 100 lakh crore by 2025, according to the NIP.

In terms of financing, the private sector’s share of investment has been estimated at 22 per cent, or around Rs 22 lakh crore, with the central and state government’s share being estimated at around 39 per cent each.

The proportion of financing between the central and state governments is also expected to vary widely depending on the sector.

For example, in a sector such as the railways, which is largely under the administrative jurisdiction of the central government, the Centre’s share of funding is expected to be as high as 87 per cent with private share being 12 per cent.

On the other hand, for a sector such as urban and housing, which largely falls under the state and local governments, the Centre’s funding has been estimated only at 31 per cent, while the state government’s share is 68 per cent.

When it comes to financing, it is likely that both the state and local governments would need significant facilitation and handholding by the Centre, given their fiscal constraints. The NIP specifically acknowledges this in the context of local government institutions like urban local bodies/municipal corporations that are mostly supported by grants from the upper tiers of the government. It highlights financial instruments such as municipal bonds, land and asset monetisation as potential solutions.

Land pool

Given the existing constraints in organisational capacity both at the state and local government level, a central scheme based on pooling of land and other existing infrastructure assets at the state level, with seed capital being contributed by both the central and the state governments, may be explored in Union budget 2020.

This can either be sector specific or can leverage a fund of funds model that is sector-agnostic at the apex level. In either case, the required institutional framework would need to be fleshed out across all the three tiers of the government in terms of nodal agencies and their role in identifying projects, preparing feasibility studies or detailed project reports, project appraisals, mobilising finances and monitoring the implementation.

Asset aggregators

Coming back to the larger issue of infrastructure financing, monetisation and transfer of existing infrastructure assets and projects to financial aggregators and asset operating companies has emerged as one of the prominent options in recent years.

The National Infrastructure and Investment Fund’s partnership with Roadis, a big asset aggregator in Europe, for road and highway projects in India is a typical example.

The NIP also highlights this options for certain sectors. However, to facilitate these options, it is important that the existing infrastructure assets are financially viable.

Given the long gestation period, together with uncertainties around land availability, interest rates and user charges, many of the existing projects may not be financially viable in their current form.

Suitable guidelines for renegotiation of concession agreements with existing operators or asset purchasers, therefore, becomes a key requirement.

To support this initiative financially, the budget may consider setting aside a small corpus for this purpose.

While the NIP also mentions the need to tweak investment norms and regulatory provisions for potential long-term financiers such as insurance companies, pension funds and infrastructure-focused alternate investment trusts, these measures need to be viewed together with the credit enhancement mechanism outlined in the last budget.

Accordingly, the initiative to operationalise the National Credit Guarantee Enhancement Corporation may need to be fast tracked and its budgetary outlay reviewed as part of the Union Budget 2020.

As outlined in the NIP, with private financing likely to play a key role in sectors such as railways and urban development, there is an immediate need to set up independent regulatory mechanism(s) for overseeing areas such as railway fares and water tariff; quality of service; resolution of disputes etc.

The budget may consider making a specific allocation for this purpose as more than one sector is likely to require this intervention, with some of these regulatory agencies requiring significant capacity creation at the state level.

Arindam Guha is partner, Deloitte India