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Opinion: Opinion | To boost infrastructure, improve liquidity for private players

Opinion: Opinion | To boost infrastructure, improve liquidity for private players

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Infrastructure investment generates significant multipliers effects in the economy. This is particularly true for public spending in the form of capital spending. An initial investment in infrastructure triggers an additional economic activity beyond the direct cost of construction, resulting in broader economic benefits. These benefits include an increase in employment, greater commercial activity and greater consumer expense in all sectors affected by better infrastructure. According to the National Institute of Finance and Public Policies, each rupera spent in infrastructure contributes between 2.5 and 3.5 rupees to GDP.

India has established an ambitious goal to become an economy of $ 7 billion by 2030. To achieve this, the country requires an annual compound rate of 10.1% from 2024 to 2030. Maintaining such growth will require a significant investment of both the government and the sector private. The union government has constantly increased its capital expenditure and in the budget of fiscal year 25, assigned ₹ 11.11 Lakh Crore for capital expenses, which represented 3.4% of GDP.

Public Sector Limitations

However, data on government spending suggest that the center may not reach its annual capital expenses in around ₹ 80,000 million rupees. This deficit is attributed to spending restrictions during the general elections in the first quarter and the interruptions caused by the heavy rains of the monsoon in the second quarter. In addition, state governments have been fighting to completely use the Liberal Capex Loan center of the center of ₹ 1.5 Lakh Crore for the current financial year. Given the conditionalities linked to some of these facilities, it can be a challenge for the states to attract the remaining funds in the last months of fiscal year 2015.

These trends highlight the limited capacity of the public sector to completely use the assigned capital budget. In addition, as both the center and the states move along a tax consolidation route to reduce deficits, maintain the growth and impulse of investment will require greater participation of the private sector in the use of funds. A two-pointed approach can address this challenge: first, accelerating public-private partnership projects (PPP), and second, improving liquidity for private entities for the development of infrastructure through bank and non-banking sectors.

A case for PPP projects

PPP projects offer several advantages to effectively use the funds assigned while guaranteeing the timely execution of the project. Private sector participation brings innovative construction techniques, advanced technologies and best management practices, optimizing costs and improving project quality. In addition, private actors assume significant risks related to the design, construction and maintenance, relieving government burden. Consequently, PPP projects promote a collaborative environment where both the government and private entities benefit. The PPP model, as the hybrid annuity model used in national road projects, is a good example of the efficient use of public sector investment through collaboration efforts.

In addition to public financing, ensuring long -term credit for the private sector will be crucial for the expanding infrastructure needs of India. Infrastructure projects generally require a large investment of initial capital and produce income flows for longer periods of time. Therefore, commercial banks are reluctant to provide loans for infrastructure projects. The mismatches of the responsibility of the assets together with the perceived risk of assets that have no performance are added to the persistent challenges in obtaining funds for such projects. To address these concerns and achieve a stable capital flow, it is important to boost the incentives driven by the policies that encourage banks to assign a certain “precomerated” percentage of their loan portfolio towards infrastructure. If a regulatory requirement is granted, such a size for infrastructure loans would force banks to increase their exposure to critical infrastructure projects, while providing clarity and predictability from private actors who request funds.

Support Bank

However, the banking sector must also be supported by comprehensive risk mitigation frameworks, as a partial credit guarantee at the beginning of the project and the payment of additional credit in installments, depending on the progress of the project. These factors will help increase the will of banks to lend by reducing the risk of breach they could find in long gestation projects.

In addition, a more nuanced policy frame can focus on encouraging banks to collaborate with sovereign funds and multilateral agencies that can be able to share project risks. It can be viable to add a mechanism for priority loans to the private sector, especially in the case of PPP infrastructure projects, to accelerate the growth of the infrastructure sector in India.

The non -banking sector must also be agreed to facilitate the history of Infra. The current regulatory framework is not conducive to investment in long -term infra assets and, therefore, most investments in insurance, PF and pensions are concentrated in government and semigubernamental emissions.

The SPV infrastructure project cannot comply with the investment criteria established by the IRDAI and PF guidelines with respect to the underlying requirements of credit rating and exposure limitation (net base). The investment pattern of the insurers, EPFO ​​and NP must be amended properly to demand a certain percentage of investment assets directly in the infrastructure sectors, especially the SPV with fences. Ideally, these institutions must have the mandate to invest at least 10% of the total assets under their administration. This would provide the diversification of investment roads for life insurers, EPFO ​​and NPS and facilitate long -term capital investments directly in sectors such as roads, ports, airports, energy generation and energy transition that develop under a regulatory framework, or through the Government Concession Agreement or any of its agencies.

Each story needs different protagonists to play their role. Improving liquidity for private sector entities to facilitate their contribution to the infrastructure growth history of India is one of those protagonists who must receive the center of the stage in our planning.

(The author is a retired IAS officer, former WTO director and currently president of the Chintan Research Foundation)

Discharge of responsibility: These are the author’s personal opinions

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