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Housing not ‘Infra Dig’ any more

Housing not ‘Infra Dig’ any more

Industry sectors like housing, cement, et al have been clamouring to be allowed into the hallowed precincts of infrastructure for quite some time. Apart from the recognition of contributing to nation building, to be admitted as a member of the so called ”Infrastructure Club”also offers the lure of easier financing norms. So, finally, after all these years of lobbying, when this year’s Budget conferred infrastructure status to the affordable housing sector, this is to be seen as a great moment when housing is also accepted to be contributing to taking the country forward.

But what will it mean for housing, or to be more particular, affordable housing, in concrete terms, clearly pun intended? What difference will it make for the potential customers of affordable housing? Our Cover Story is intended to cover these questions.

A nation is successful in building a state-of-the-art infrastructure for itself, only when its infra projects are financially sustainable. Infrastructure cannot be developed by public funds alone, and private sector participation in infra projects is contingent upon our success in evolving financially viable models that can attract equity and debt investments. India’s first major wave of private investments/PPPs in infra, in the first decade of this century, has at best been a mixed bag of successes and failures, if not disastrous. The effect of this has been a long hiatus in this decade so far, when the large infra developers are still smarting under the issues and problems and unviabilities of the past investments, stretched and leveraged badly – and have been in prolonged hibernation.

It has been reported in the Financial Stability Report that 33 per cent of all stressed loans of our banks belongs to the infrastructure sector. Such is the unviability in the sector that against this share of 33 per cent, when it comes to the Corporate debt Restructuring (CDR) packages worked out for these stressed borrowers, the highest failure rate even at the CDR stage is 20 per cent (Rs 40,349 crore) in the infra category, giving rise to the apprehension that all these are truly nonperforming assets.

There is talk about immaturity of the Indian financial markets with respect to longer-term financial products relevant for the infra sector, but this maturity will come as the infra assets are seen to be reasonably bankable.

Half-hearted interventions such as Hybrid Annuity Model (HAM) as in highways or the "Swiss challenge” in some isolated cases, have failed to generate much enthusiasm. Many government agencies are merrily going around promoting public funded projects on EPC basis, based on incredibly soft loans from Japanese development banks, but this route, although politically astute, is not an endless opportunity. There will always be projects to be executed for the public good, even if these are not viable. However, for other projects like power utilities, water systems, ports, highways, airports, Smart Cities, and even housing, we have to work hard to formulate viable models by tweaking governance structures, bidding formats, partnership agreements, usance fees, interest rates, risk-sharing formulae, monetising of opportunities such as Value Capture Financing, etc, etc.

There is light at the end of the tunnel, but the tunnel looks rather long at this moment.


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