Kick-starting the reform process to bring the Indian economy back on track, the newly elected Government has recently cleared seven projects worth Rs 21,000 crore
VR Neelakantan, Partner, Amarchand Mangaldas, speaks to Infrastructure Today on how this move represents a strong starting point for more definitive reform and impetus to the sector. Excerpts:
What do these big-ticket clearances mean for the infrastructure sector at large?
The new Government in the electoral process championed infrastructure development as one of the key issues of concern and this has translated into a strong focus on the sector in the first month and half of its incumbency, with energy and transportation sectors being singled out for specific attention. Simultaneously the Government has also commenced steps to procure a more efficient implementation of single window clearances for infrastructure projects at the Central and State levels and is looking at expanding the role and mandate of the CCEA (Cabinet Committee on Economic Affairs) to also procure oversight for project implementation, with a view to procure continued emphasis on cleared projects.
The first few beneficiaries of the new Government emphasis on infrastructure appear to be the grant of clearances for certain long delayed projects. The varied stages at which these projects have been delayed, as also the variety of sectors that they fall into, are indicative of the Government focus on greater and timely project implementation and represents a strong starting point for more definitive reform and impetus to the sector. While it is early days in the new Government tenure, given the large gap in infrastructure requirements that the Government (and previous incumbents) has repeatedly acknowledged, we do hope that in the coming few months, more concrete steps are taken towards re-invigorating the market for investments in and development of, infrastructure.
What kind of impetus will the players associated with these projects?
From the perspective of the developers and the other project participants (including the financial institutions involved) in the project implementation, the grant of the clearances represents a significant opportunity to ensure completion of the much delayed project development, and move towards recovery of the underlying investment that has already been made in the project. Needless to say, the singling out of these projects by the Government also raises expectations for the project participants for a red-carpet/fast-track treatment of the projects going forward.
For the sectors of energy and transportation, where a significant portion of these projects fall, the clearances raise expectations for more detailed review of the policy structure and future emphasis on the sectors as a whole, and investor confidence in these sectors should see a rise with the implementation of these measures.
What more can be done to expedite the growth in the infrastructure sector and also to ascertain if the cleared projects finally deliver the promised outcome?
In our view policy changes are required to enable and facilitate the availability of necessary finance for the debt component of project cost and also timely grant of necessary project approvals. In a typical infrastructure project, 70 per cent of the project cost comes from long-term borrowing (project funding), majority of which is presently met by nationalised banks.
Fundamentally, the banks cannot endlessly provide long term loans (typically in the range of 10-15 years) since they do not have corresponding long-term deposits. The policy change is imperative to tap other sources of longterm loans such as insurance and pension funds.
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