A slew of reforms and constant endeavors by the government have made infrastructure sector gain attention and momentum that is likely to continue in year 2022 as well
The renewed government focus and timely introduction of favourable policy measures have given the Indian infrastructure the much-needed momentum. Building on that impetus, the country is likely to attain the position of the third biggest construction market in 2022. And the recently launched Prime Minister Gati Shakti-National Master Plan (GS-NMP) for infrastructure Development could not have come at a more suitable time.
PM Gati Shakti is a digital platform connecting 16 ministries — including Roads and Highways, Railways, Shipping, Petroleum and Gas, Power, Telecom, Shipping, and Aviation - for ensuring holistic planning and execution of infrastructure projects, according to the PMO. Projects covered under the initiative would include Bharatmala, Sagarmala, inland waterways, dry/land ports, UDAN, various economic zones and product specific clusters, defence corridors, electronic parks, industrial corridors, and agri zones. Bolstered by these measures, the country is looking to become a $5 trillion economy by 2024-25, increase exports of goods and services to $1 trillion and improving domestic capital goods manufacturing output to $101 billion, both by 2025.
As the year 2021 draws towards its end, question remains whether infrastructure sector moving with the desired momentum to attain the national goals of growth as envisioned by the government?
Early in the year, in the Union Budget 2021, a massive push to the infrastructure sector was given by the government by allocating Rs. 233,083 crore (US$ 32.02 billion) to enhance the transport infrastructure. The government expanded the 'National Infrastructure Pipeline (NIP)' to 7,400 projects. ~217 projects worth Rs. 1.10 lakh crore under some key infrastructure Ministries have been completed, as informed by the Finance Minister while presenting the union budget. The Minister had further stated that in order to enable Debt Financing of InVITs and REITs by Foreign Portfolio Investors suitable amendments will be done in the relevant legislations. The minister believes that the move is expected to help in augmenting funds for infrastructure and real estate sectors.
National Monetization Plan
The Union Finance Minister had also announced launch of a “National Monetization Pipeline (NMP)” of potential brownfield infrastructure assets stating that monetization of operating public infrastructure assets is an integral financing option for new infrastructure construction. The Minister had also informed that an Asset Monetization dashboard will also be created for tracking the progress and to provide visibility to investors.
Union Finance Minister, while launching the pipeline, said, “The Asset Monetisation programme has taken shape because of the vision of our Hon’ble Prime Minister who has always believed in universal access to high-quality and affordable infrastructure to the common citizen of India. Asset monetisation, based on the philosophy of Creation through Monetisation, is aimed at tapping private sector investment for new infrastructure creation. This is necessary for creating employment opportunities, thereby enabling high economic growth and seamlessly integrating the rural and semi-urban areas for overall public welfare.” Ms. Sitharaman further detailed the reforms and initiatives undertaken by the current Government towards accelerated infrastructure development and for incentivizing private sector investments including the recent ‘Scheme of Financial Assistance to States for Capital Expenditure’, which incentivizes State Governments to recycle State Government-owned asset for fast-tracking greenfield infrastructure.
The NMP has been developed by NITI Aayog, in consultation with infrastructure line ministries, based on the mandate for ‘Asset Monetisation’ under Union Budget 2021-22. NMP estimates aggregate monetisation potential of Rs 6.0 lakh crores through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025.
“The NMP is aimed at creating a systematic and transparent mechanism for public authorities to monitor the performance of the initiative and for investors to plan their future activities. Asset Monetisation needs to be viewed not just as a funding mechanism, but as an overall paradigm shift in infrastructure operations, augmentation and maintenance considering private sector’s resource efficiencies and its ability to dynamically adapt to the evolving global and economic reality. New models like Infrastructure Investment Trusts & Real Estate Investment Trusts will enable not just financial and strategic investors but also common people to participate in this asset class thereby opening new avenues for investment. I hence consider the NMP document to be a critical step towards making India’s Infrastructure truly world class,” stated Amitabh Kant, CEO, Niti Aayog.
According to official data released, some key measures in the direction of monetization mentioned included:
- National Highways Authority of India and PGCIL each have sponsored one InvIT that will attract international and domestic institutional investors. Five operational roads with an estimated enterprise value of Rs.5,000 crore are being transferred to the NHAIInvIT. Similarly, transmission assets of a value of Rs. 7,000 crore will be transferred to the PGCILInvIT.
- Railways will monetize Dedicated Freight Corridor assets for operations and maintenance, after commissioning.
- The next lot of Airports will be monetised for operations and management concession.
- Other core infrastructure assets that will be rolled out under the Asset Monetization Programme are: (i) NHAI Operational Toll Roads (ii) Transmission Assets of PGCIL (iii) Oil and Gas Pipelines of GAIL, IOCL and HPCL (iv) AAI Airports in Tier II and III cities, (v) Other Railway Infrastructure Assets (vi) Warehousing Assets of CPSEs such as Central Warehousing Corporation and NAFED among others and (vii) Sports Stadiums.
A Mordor Intelligence industry report states that the Infrastructure sector in India is estimated to grow at a CAGR of approximately 7% during the forecast period with the government planning to invest about INR 102 lakh crore on infrastructure projects by 2024-25.
Reviewing Progress
In a recent review meeting of the NMP, Ms Sitharaman restated that infrastructure projects are a priority for the Government and to achieve the intended vision of the Capex stimulus given in the Union Budget, an increase of 34.5% over last year, it is essential that physical and financial projects targets are expended in the early quarters of the financial year.
According to an official statement, in the review with MoRTH, the Finance Minister suggested for monthly review of specific projects from quarterly review to ensure timely completion of projects. In the discussion with PNG, the Finance Minister observed that since refineries are key infrastructure assets essential to economic growth, their progress forms important part of infrastructure sector. Secretary of M/o Steel shared that the steel production is at 90% of its pre-pandemic levels and in the next two quarters M/o Steel is expected to achieve its highest-ever production. Ms. Sitharaman observed that steel sector has great potential and highlighted that the sector will benefit from recently launched Production-Linked Incentive (PLI) for specialty steel under Aatma Nirbhar Bharat for specialty steel production.
Widening its gamut, Aatma Nirbhar Bharat has also provided impetus to the domestic manufacturing ecosystem especially to Micro, Small and Medium Enterprises (MSMEs) with an aim to facilitate local manufacturing. Not only that, with a capital infusion of INR 1,000 crores to Solar Energy Corporation of India, it is likely to push a surge in large-scale solar installations, grid-connected projects, solar plants, and solar parks along with a phased manufacturing plan for solar cells, solar panels, and domestic production of solar inverters and solar lanterns.
Time and again it has been reiterated by the government that infrastructure development is one of its key focus areas and the spending on the sector is going to continue in some form or the other. The budget in year 2022 is also likely to see continued focus on infrastructure development. Recent government data indicates that India's infrastructure output growth rose to 7.5% year-on-year in October from 4.4% the previous month. It further indicated that Infrastructure output, which comprises eight sectors including coal, crude oil and electricity and accounts for nearly 40% of industrial output, rose by 15.1% year-on-year over the April-October period.
However, what is a matter of concern is the comparatively small amount of FDI inflow in the infrastructure sector as compared to the other sectors. Official data indicates that infrastructure and construction received only Rs 61,000 crore in FY 21 whilst services and tech together got Rs 2.4 lakh crore. This is the scenario in the infra space when 100% FDI is permitted under the automatic route for sectors like roads, railways, ports and construction. With a massive pipeline of projects including 80,000 kms of roads under Bharatmala, 100% electrification of broad-gauge rail track by 2023, 1,000 kms of metro in cities and 500 GW of renewable energy by 2030, these planned infra projects don’t hold the possibility of initiating a good beginning till adequate amount of funds are in place. The 2018 Economic Survey had laid down the roadmap indicating that the country will require Rs 450 lakh crore of investment in infrastructure by 2040. The response from foreign investors has not been what the sector was hoping for making the government look at setting a rather hard line disinvestment target of Rs 1.75 lakh crore for FY22.
Looking ahead
The journey towards building a sustainable and world-class infrastructure initiated by PM Modi is progressing. As the Prime Minister recently convened that ‘India is moving forward with vision of investing more than Rs 100 lakh cr in modern infrastructure’. Addressing a public event in Dehradun, PM Modi shared, “The Modi government in its 7 years of being in power has constructed National Highways of more than 2,000 kilometres worth Rs 12,000 crore in the state. Now, India is moving forward with the intention of investing more than Rs 100 lakh crores in modern infrastructure”.
Resonating with the vision of PM Modi, The Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textiles, Piyush Goyal recently shared that India is committed to build modern infrastructure for the 21st century, at a pace never seen before. Referring to the recently launched PM GatiShakti Master Plan, he said that it would revolutionise the next generation of multimodal infrastructure development in the country. He said that the speed of highway construction has increased threefold from ~12 km/day in 2013-14 to 37 km/day in 2020-21 and that there was a fourfold increase in Railways Capex from Rs 54,000 Crore in 2013-14 to Rs 2.15 Lakh Crore in 2021-22. He further added that in the 5 years before 2014, only 60 panchayats could be connected with optical fibre and that in last 7 years, more than 1.5 lakh gram panchayats connected with optical fibre. He also emphasized that efficient logistics was essential to bring ease and empowerment to businesses as well as citizens. Observing that logistics is an enabler of multiple visions- From Make in India for the World to Last Mile Delivery, the Minister said that to achieve ambitious targets it was needed to have expressways of Land, Air & Water. Infrastructure sector in 2022 is all set to ride on the groundwork laid this year.
