After a period of 30 years from the landmark reforms pursuant to the 1991 Budget, it is expected that the government will, through the upcoming Budget, carry out reforms that provide an impetus to the economy on account of the prevailing situation created by pandemic. The infrastructure sector, being a value creator and one which boosts employment and income generation, would be one of the key areas of focus for the government, especially in the backdrop of the announcements made by them in May 2020 as part of AtmaNirbhar Bharat Abhiyan.
The government, along with the increase in public expenditure on the infrastructure sector, has to also focus on policy reforms that create a competitive and conducive environment for PPP projects. The first key issue is that of sustainable financing. With banks and infrastructure finance institutions turning conservative in providing long-term financing for infrastructure projects due to challenges in the resolution process under the Insolvency and Bankruptcy Code (IBC) and plummeting NPAs on the books of infrastructure companies, the government should focus on facilitating financing for long-term capital-intensive projects. Aware of the woes of infrastructure project developers, the government had, in May 2020 as a part of its Covid-19 economic stimulus, announced certain measures to improve the liquidity of project developers. However, these were only short-term reliefs.
Access to long-term financing is the need of the hour for the infrastructure sector and heavy dependency on financing from banks may not be efficacious. The government, with the establishment of the National Investment and Infrastructure Fund (NIIF), has shown its inclination in providing equity and debt for infrastructure projects which are part of the National Infrastructure Pipeline. Further, with the introduction of the Infrastructure Investment Trusts, the government provided a platform to infrastructure projects to raise capital. However, the same is yet to reach the desired scale and size.
The second challenge is to incentivise and encourage private sector participation in the infrastructure sector to help achieve the target of a $5-trillion economy by 2025. The infrastructure sector will be a key driver to achieve this target and enabling the PPP framework is an important aspect. It is, therefore, important to address the regulatory bottlenecks. The ambitious National Infrastructure Pipeline has around 2,678 stressed assets and with the suspension of IBC in wake of Covid-19, the government’s key agenda should be to bring in reforms for resolution of these stressed assets.
To ensure seamless connectivity, the government must increase allocation to transportation infrastructure. This will provide a tremendous boost to the economy in the long run. The government has, in the past, announced major programmes targeting transportation infrastructure such as Bharatmala Pariyojana (Highways), SagarMala (Ports), railway station redevelopment programme, inland waterways development, Namami Gange, UDAN (Airports) etc. However, there have been delays in pursuing the targets under most of these schemes. The delays are primarily owing to regulatory challenges in acquisition of land and procurement of clearances and approvals.
With the disinvestment plans of the government hitting a roadblock due to the pandemic, the government should try to monetise more public assets to increase private participation. While the government has, on several occasions, indicated and emphasised the importance of public private partnership in the infrastructure sphere, most of its ambitious projects have not attracted enough interest from private participants owing to problems in contract enforceability and regulatory challenges. At present, India lacks a comprehensive PPP policy and a separate independent regulator and adjudicatory tribunal for efficient and enforceable dispute resolution for PPP projects. Most of the regulatory and adjudicatory works for PPP projects is undertaken by the authority overseeing the project. With the existing burden of administrative work, regulatory and adjudicatory functions take a back seat. While authorities like NHAI have set up alternative dispute resolution mechanisms, a similar mechanism is not present with other authorities and ministries awarding PPP projects. An independent institution focussed on revisiting the PPP contracts and to oversee PPP projects may just be a step in the right direction.
India has tremendous potential of being a gas-based economy and the success of city gas distribution pan-India is a proof of the same. The bids invited by the Petroleum and Natural Gas Regulatory Board for the city gas distribution business has seen active participation from domestic as well as foreign investors. The government should allot a considerable budget for infrastructure development in the energy sector especially for expanding pipeline infrastructure. The Union Government had, in the last Budget, announced the expansion of the National Gas Grid to 27,000 km. With the establishment of gas exchanges, access to natural gas has become seamless and the government should focus in building extensive pipelines for connecting gas to consumption hubs across the country. The government should bring in incentives for using natural gas to promote the sector just like the existing incentives available to renewable energy users. To provide impetus to the One Nation-One Grid initiative, private participation can also be invited.
The pandemic has posed its own unique challenges which could not have been foreseen or estimated, necessitating the government to address multiple issues of the economy. The unique challenges posed by the catastrophe will require unique solutions and the government should use this opportunity to overhaul fiscal reforms and reinvigorate the economy.
Views are personal. The author is a Partner at Khaitan & Co. With assistance from Prateek Bhandari (Principal Associate) and Sathyajith Nair (Associate), Khaitan & Co.