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Budget 2019: Infrastructure got pace, but private investors still wary

Surya Sarathi Ray

When the Narendra Modi government assumed office four years and nine months ago, private investments in infrastructure was down to a trickle and bank credit to the sector was grinding to a halt. Investors and lenders had overestimated the near-term growth potential of the sector and the economy as a whole. Implementation issues partly because of various regulatory hurdles and inflated costs/delays in land acquisition but also due to a rethinking on the part of private promoters had stalled majority of the under-construction projects. Long gestation periods of the highways and power generation projects proved to be incompatible with the credit cycle of commercial banks.

The Modi government has managed to make some headway in easing the regulatory issues and land acquisition hurdles for highway projects. The terms of concession agreements have been relaxed and made more practical for highway and port projects some found a moral hazard in such steps- and exit was made easier for private promoters to enable new investors to take over the stressed projects and impart a fresh momentum to PPP projects.

However, a huge build-up of non-performing assets made it difficult for the banks to live up to the task and complement the government s efforts. Private investments haven t really staged a comeback. The government therefore resorted to public investments in a big way. Given the paucity of budget funds, it also relied on an unprecedented scale on extra-budget resources.

For instance, as far as highway projects are concerned, out of the total investments of Rs1.58 lakh crore envisaged for 2018-19, only 15% is expected from the private sector, while the share of budget and extra-budget resources are 45% and 40% respectively. Compared to this, in 2014-15, the year when Modi took over, total investments in the sector were around Rs52,000 crore and the shares of private, budget, extra-budget sectors were 37%, 57% and 6% respectively.

A recent Icra report said: Lenders, in some cases, are insisting on higher as well as upfront equity infusion, particularly in the case of smaller players and developers with leveraged balance sheets. Many infrastructure players have raised funds through the corporate bond market for completed projects (replacing bank credit with bonds).

The desperation with which private investments are being sought is evident from the hybrid annuity model (HAM) for highway construction. Under HAM, 40% of the project cost comes as a grant from the NHAI, while the concessionaire s equity contribution is just 9% of the total project cost.
Despite these hurdles, the pace of infrastructure creation has accelerated a bit under the present regime. According to Care Ratings, 1,361 infrastructure projects, involving Rs16.78 lakh crore, were under implementation as on August, 2018 compared with 727 in April, 2014. Railways accounts for 32% of both the number of projects and the value.

Port handling capacity rose to 1,415 million tonnes (mt) in FY18 from 800 mt in FY14. Commissioning of new rail lines, doubling and gauge conversion in 2009-14 period was around 4.2 km/per day and it was 6.5 km/day during 2014-18. . Under the subsidized travel scheme UDAN, several under-served and un-served airports have been revived. Since 2016, Airports Authority of India has started scheduled operations at 37 such aerodromes.

Renewables-based electricity generation capacity surged 111% in less than 60 months to 74 giga watt. Solar tariffs have reduced from Rs17/unit in 2009 to the lowest price of around Rs2.4/unit discovered in multiple recent auctions.
Though UDAY aims to bring down power discoms AT&C losses to 15% by the end of FY19, many major states are far from attaining this target. All-India AT&C losses were at 18.6% at the end of FY18, down from 20.2% recorded in FY17-end.

(With inputs from Saurabh Kumar, Anupam Chatterjee & Arun Nayal)