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The Change
The Budget has proposed a slew of measures to ease the financing woes that had crippled the infrastructure space for long. On the one hand, the budgetary allocations were significantly increased — ₹1.7-lakh crore allocated for transport infrastructure alone (up 23 per cent y-o-y). That apart, about ₹22,000 crore has been allocated as equity infusion for Infrastructure Finance Companies such as IIFCL and a subsidiary of NIIF. These companies can now further raise long-term debt of ₹1-lakh crore for financing the National Infrastructure Pipeline (NIP).
On the other hand, the Centre has proposed to exempt all returns earned by foreign governments on their investments made in the infrastructure space by end-March 2024. Also, a lock-in period of three years has been made mandatory for such investments, to ensure continued flow of funds.
For the NHAI, the Centre has proposed to monetise at least 12 lots of highway bundles, covering over 6,000 km before 2024. The Budget also proposes accelerated development of highways — including the development of access control highways (2,500 km), economic corridors (9,000 km), coastal and land port roads (2,000 km) and strategic highways (2,000 km).
Background
In FY20 so far, companies in the infrastructure space have seen a lull in order intake. Due to the funding constraints of both the Centre and private players, fresh awarding saw a temporary halt. While the order awarding did see a marginal revival in late November and December 2019, projects continue to face hurdles on ground-level execution.
For instance, the infrastructure behemoth, L&T, reported a 5 per cent y-o-y drop in its December quarter earnings (in infrastructure segment), due to execution delays. That apart, the company also saw a 20 per cent drop in domestic order inflows.
While delays in land acquisition and clearances were impeding the execution of several projects, the embargo on construction due to pollution and political tensions in certain pockets, made matters worse. Further, long-pending receivables from States have added to the funding woes of many companies. Prominent ones include EPC players like NCC ltd and VA Tech Wabag.
Verdict
While financing has been eased to a large extent, nothing has been discussed on speeding up project execution. L&T, Dilip Buildcon and IRB Infrastructure may benefit with healthy order intake, given the higher allocation from the Centre. While on the other hand, ground-level delays will continue to hamper their performance. In the 6,500 projects compiled in the NIP as well, the delays may act as a dampener, even as the Centre continues to lure foreign investors.
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