Dash for Cash

There is much scope for discussing concepts that can be explored in India to facilitate long-tenure infrastructure financing at globally competitive rates, says Sapna Seth, Associate Director, Singhi Advisors.

The Indian infrastructure story is at an interesting crossroad. On the one hand, being the world´s fastest growing major economy, India needs to create fresh capacity in its infrastructure to maintain the growth momentum. On the other hand, banks, which have been the main source of funds for infrastructure projects, are saddled with mounting levels of stressed assets which have almost choked their ability to lend.

Infrastructure projects are capital-intensive with long gestation periods, requiring strong policy frameworks and structural flexibility to enable capital commitment from the private sector. A major portion of debt funding for infrastructure projects in India is provided by commercial banks, which are constrained by an increasing asset-liability mismatch and regulatory limits on exposure to particular sectors.

And incidentally, the infrastructure sector accounts for a major chunk of that stressed assets portfolio. While public-private partnerships (PPPs) had been the mainstay for infrastructure projects in India for quite some time, they have now almost come to a standstill. The risk appetite of the private sector for infrastructure projects is yet to pick up.

Growth Revival
However, in order to revive the growth momentum, the government has sped up investments on its own in select sectors such as roads and highways, sped up the process of project clearances, introduced a number of schemes to refinance existing projects and conceptualised new investment vehicles.

While the government needs to be praised for its efforts, there is still much scope for discussing new and existing concepts from around the world that can be explored in India to facilitate long tenure infrastructure financing at globally competitive rates. Also, we have remained dependent on bank finance for infrastructure projects for far too long with a constraint that banks´ primary source of funding is deposits which do not have long maturity. It is high time we explore alternative sources for long-term funds from long duration funds.

The government has articulated the infrastructure vision for India through powerful ideas such as Bullet Trains, river linking, highway development and port development.

To achieve this vision, the government has undertaken several measures such as introducing electronic toll collection and fast tracking of project approvals to allay concerns of the investor community and strengthening policy frameworks and encouraging investment. In my view, with the drive from the government to scale up investments and substantial availability of funds with the banks post demonetisation, the infrastructure sector is likely to gain momentum and pick up in the coming fiscal, reviving investments in the sector.