Reviving infrastructure

Facing criticism that it has done precious little on the ground to boost growth, the Centre has been trying hard to revive the key infrastructure sector, giving it an extra push to get at least a handful of large projects going. The roads ministry, in particular, has been proactive in seeing to it that stalled projects are revived. But this is proving to be an uphill task, given the issues involved and the fact that most infrastructure companies are steeped in debt. Banks, too, are more focussed on fighting their own bad loans battles. The 2016-17 Budget admittedly increased the outlay for infrastructure to ₹2.21 lakh crore, including the capital expenditure of Indian Railways. The Budget also outlined steps to resolve disputes in public private partnership (PPP) contracts and renegotiate PPP concession agreements, and mooted a new system of credit rating for infrastructure projects. While these once again underline the Government’s seriousness to get infrastructure projects going — which in turn will have the downstream benefit of boosting demand in commodities such as cement and steel, and in the process the whole economy — the real problem lies in the non-availability of funds for infrastructure contractors.

With public sector banks having almost completely clamped down on lending to the infrastructure sector, the Centre was in a bind. There is hardly any liquidity available within the country for even pure-play infrastructure contractors, leave alone project developers in the private sector, to take up projects. Last week’s relaxation by the Reserve Bank of India of the norms under which infrastructure companies and those financing the infrastructure sector can raise debt from overseas markets, subject of course to certain conditions, should provide some welcome respite on the infrastructure financing front. The central bank had come out with the revised guidelines for external commercial borrowings after discussing with the Centre, which is quite keen that infrastructure projects, especially those stuck or stalled for various reasons, take off. The RBI has also included exploration, refining and mining sectors as those that can tap funds under this route. The central bank has made it easier for infrastructure companies and infrastructure non-banking finance companies to borrow from overseas markets, where money is available in plenty. Even with the proposed hedging norms, the interest rates will be lower than in the domestic market. This will meet the much-needed working capital requirement of the companies and help pure-play contractors take up projects, while it is still some time before PPP projects see action.

The new ECB norms combined with the National Investment and Infrastructure Fund that will extend equity support to NBFCs and financial institutions that are mainly engaged in infrastructure financing for them to on-lend to identified projects ensure that funds will no longer be a constraint. If the banks manage to clean up their balance sheets in a year or two and start lending again, it will augur well for the infrastructure sector to return to the growth path.

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