The infrastructure segment is both the cause and victim of the current economic slowdown. While the slowdown began with the lacklustre growth in investments, the spiral effects have now dampened the sector further.

This is evident from the growth in gross fixed capital formation (GFCF). Centre-run schemes such as the Bharatmala helped spur the GFCF component of GDP, despite the continuing lull in private capex. From late FY16 to FY19, GFCF saw a quarterly average growth of 9.7 per cent.


This slowed to 4 per cent in the June 2019 quarter and further to just 1 per cent in the September quarter of FY20, largely due to fresh orders from the Centre coming to a standstill. Aside from funding constraints, perennial delays in ground-level execution also added to the sector’s woes.

Fresh awards stalled

Most listed players in the infrastructure space reported a lull in domestic order intake in the first half of FY20. While a few downsized their growth guidance for the year, other stronger players shifted focus to garnering more international orders.

Domestic order inflows were crippled due to financing constraints of both the government and the private sector. With weak revenue visibility, banks were not willing to lend to infrastructure players. The Hybrid Annuity Model (HAM) or Engineering Procurement and Construction (EPC) model could have been more suitable in such conditions, due to lower requirement for financing. But the government did not award too many of such orders due to the lower tax and toll revenues, on account of the current slowdown, reducing its resources.

For instance, in the road construction space, debt plagued both the National Highways Authority of India (NHAI) and private companies. NHAI’s debt ballooned to ₹1.78 lakh crore in FY19 from ₹24,068 crore in FY14, thanks to the increasing HAM and EPC orders. With funds drying up, order awarding slowed to 36 contracts (for 1,120 km) in FY20 so far. This is just half of the 77 (2,263 km) contracts awarded in FY19.

Monetise existing assets

Instead of raising further debt, the Centre and the private players shifted focus towards monetising their existing assets.

With difficulties in toll collection in certain stretches (north-eastern states, for instance), NHAI saw diminishing investor interest in its second and third bundles of the Toll-Operate-Transfer (TOT) projects. Hence, the Centre resorted to improving toll collections. Mandating the use of FasTag is expected to help curtail the loss in toll revenue to a large extent.

While the Centre’s monetisation was not entirely fruitful, private companies saw greater traction. For instance, Dilip Buildcon sold its projects to Shrem Group (in 2017) and Cube Highways (in 2019) to raise about ₹2,300 crore (29 road assets), cumulatively. Other companies in the space followed suit.

Unkept promises

In a bid to shift the burden of financing away from bank borrowings, the Centreproposed measures to open up funding avenues in the Budget of 2019-20. Two such measures proposed the setting up of a Credit Guarantee Enhancement Corporation and further deepening of bond markets (through introduction of corporate tri-party repo market).

To boost investor sentiment, the Centre also proposed permitting the transfer of investments made by FIIs/FPIs in debt securities issued by Infrastructure Debt Fund — NBFCs (IDF-NBFCs) — to domestic investors.

Though the measures proposed were in the right direction, sadly, no effort has been taken as yet. Clarity on these will be the most important thing to look out for in the upcoming Budget, apart from the usual budgetary allocation to notable schemes.

Execution delays

It is hoped the the Budget would come up with measures to tackle the persistent delays in ground-level execution of projects. According a report from MOSPI, delay in land acquisitions and other clearances, Maoist problems, pending litigations and law and order situations added to the woes of infrastructure projects.

While the Centre did take cognisance of the same in the National Infrastructure Pipeline (NIP), measures to resolve the same went missing. The industry awaits guidance on this front from the government in the upcoming Budget.

That apart, several projects also faced the brunt of changes in State governments.

Aside from hampering the execution, working-capital levels of several companies also deteriorated. This is thanks to the long-pending dues from governmental departments.

Such delays in execution and pending sovereign receivables could imperil India’s ability to attract overseas investments.

Measures to provide immunity to these projects from any upheaval in regional politics, along with speeding up the recovery of such dues, would certainly help revive investor sentiment towards this space.

In the NIP, the Centre has laid a detailed five-year roadmap for the infrastructure spends in the country. The budgetary allocation for the infrastructure segment collectively, is pegged at ₹1.9 lakh crore, ₹2.3 lakh crore, ₹2.7 lakh crore, ₹3.3 lakh crore and ₹4 lakh crore, respectively over FY21 to FY25. The collective allocation to various infrastructure schemes, such as the Bharatmala, UDAN-RCS, and Sagarmala, is likley to be the same in the upcoming budget as well.