INFRASTRUCTURE ( INFRASTUCTURE FINANCING IN INDIA (Emerging options …
INFRASTUCTURE FINANCING IN INDIA
As per industry estimates, infrastructure in India needs an investment of USD 6 Trillion in the period 20162030.
, Indian infrastructure sector has faced several challenges
cost and time over-runs in projects
inappropriate risks sharing through PPP framework, uncertainty in the policy and regulatory frameworks, prolonged disputes between Government and Private players, as well as sectoral issues including poor financial health of public sector counter party entities such as the power discos etc
. As a result, the sector is marred with sluggishness in financing with further aggravation due to the unprecedented stress levels in the banking sector on account of increasing Net NPAs which reached a level of 4.6% (2017).
the sector faces critical financing issues in terms of high cost of capital, challenges in obtaining non-recourse funding and dearth of long-term funding sources due to the asset liability mismatch. Moreover, significant investment in the Indian infrastructure sector by domestic investors is also stuck due to well documented challenges and problems persistent in the sector
To address the challenges faced by the sector, important recommendations were made by the HLC on Financing Infrastructure chaired by Mr. Deepak Parekh
It has made recommendations to enhance the infrastructure financing by tapping additional avenues from domestic and international sources and by enriching the financing in terms of better risk recognition, longer tenure and lower cost of debt.
National Investment and Infrastructure Fund (NIIF)
o It is India’s first sovereign wealth fund that seeks to create long-term value for domestic and international investors seeking investment in energy, transportation, housing, water, waste management etc. in greenfield, brownfield and stalled projects.
It is being operationalized by establishing three Alternative Investment Funds (AIFs). o The proposed corpus of NIIF is INR 40,000 Crores (around USD 6 Billion). GOI’s contribution to the AIFs under the NIIF scheme shall be 49% of the total commitment
The registered three registered funds include — NIIF Master Fund which invests directly into companies, a fund of funds which invests in funds that are managed by third parties and a third long gestation fund which is in the design stage right now
o They are regarded as a key source because - ✓ They are long term and more stable in nature ✓ They prevent companies from becoming victims of market volatility which is generally triggered by flight of funds put in by other FIIs and hedge funds
However, as a legacy of Government regulations, pension funds remain a notionally funded scheme. More than two third of the fund exists in the form of special deposits with the central Government. Under the existing stipulations, these funds cannot be drawn out for deployment in other avenues
Infrastructure Investment Trusts (InvITs
These are mutual fund like institutions that enable investments into the infrastructure sector by pooling small sums of money from multitude of individual investors for directly investing in infrastructure so as to return a portion of the income (after deducting expenditures) to unit holders of InvITs, who pooled in the money
InvITs are very much similar to the Real Estate investment Trusts (REITs) in structure and operations. InvITs are modified REITs designed to suit the specific circumstances in India
InvITs, as an investment vehicle, may aid: ✓ freeing up of current developer’s capital for reinvestment into new infrastructure projects. ✓ refinancing/takeout of existing high cost debt with long-term low-cost capital and help banks free up/reduce loan exposure, and thereby help them create headroom for new funding requirements.
‘India Infrastructure Project Development Fund’ (IIPDF
Its primary objective would be to fund potential PPP projects’ project development expenses including costs of engaging consultants and Transaction Advisor, thus increasing the quality and quantity of successful PPPs and allowing informed decision making by the Government based on good quality feasibility reports
o These are rupee denominated bonds issues in offshore capital markets help to expand the avenues for debt funding of infrastructure projects. o These bonds shield issuers from currency risk and instead transfer the risk to investors buying these bonds. o For their proper utilisation, sound macro fundamental environment needs to be maintained besides implementing structural changes relating to information asymmetry and strengthening of the bankruptcy laws