The Union Budget has been favourable for the infrastructure sector in more ways than one. Not only the capital outlay for the infrastructure sector was increased significantly, but also several other expectations were also met. This includes further allocation towards the National Investment and Infrastructure Fund (NIIF) and the setting up of a new development finance institution (DFI). These will augment the financing avenues for the infrastructure sector and can pave the way for increased private participation thereby supporting the overall infrastructure investment.

The gross budgetary support towards capital expenditure has been increased significantly to Rs 5.54 lakh crore in 2021-22 BE (up 34 percent from 2020-21 BE, and 26 percent from 2020-21 RE) with higher allocation towards the infrastructure sector (roads, railways, etc).

The Central government has also provided the capital of Rs 0.45 lakh crore as support for the Infrastructure Pipeline. The increased budgetary allocation and planned capital outlay by the Central government will help increase the pace of infrastructure investment. However, as the investments planned under National Infrastructure Pipeline (NIP) are also dependent on state governments and private sector capex, the overall investment could still fall short of the plan, unless supported by states and private sector participation.

To improve the financing availability for the infrastructure sector, the Union Budget has announced the setting up of a new DFI with a capital of Rs 20,000 crore. This institution is aimed to leverage and provides debt of over Rs 5 lakh crore to the infrastructure sector over the next three years, thereby helping bridge the infrastructure financing deficit. Infrastructure project financing in India is predominantly from the banking sector and a few infrastructure NBFCs.

Together these have an outstanding credit of Rs 22.6 lakh crore to the infrastructure sector. For meeting the increased credit requirement, it was crucial to augment the institutions providing credit to the sector. With the new DFI’s planned to extend Rs 5 lakh crore credit over the next three years, the credit availability to the sector can improve significantly. The NIP financing plan earlier had envisaged sourcing only 2-3 percent financing from a new DFI, which was lower than the plans indicated in the Union Budget. However, for achieving this, the structure of the new DFI to be able to raise large scale low-cost funds will be vital.

The Union Budget has also provided Rs 5,000 crore towards the NIIF, which would enable it to acquire infrastructure assets. This apart, another Rs 1,000 crore capital has been provided towards the NIIF Infrastructure Debt Financing Platform which could be leveraged to provide sizeable debt funding to the sector. The NIIF debt platform is targeting to build a debt portfolio of Rs 1 lakh crore by 2025 with the support of equity capital by the government and a NIIF Strategic Opportunities Fund, and potential equity participation from the private sector.

The budget has also emphasised the importance of asset monetisation in the infrastructure space through various models, including the Infrastructure Investment Trusts (InvITs), Toll-Operate-Transfer (TOT), or monetisation of the land bank. The National Highways Authority of India (NHAI), and Power Grid Corporation of India Ltd (PGCIL) already have indicated plans for their InvITs, and the budget has confirmed the proposal to transfer assets worth Rs. 12,000 crore, from these two entities to their respective InvITs. The budget has also exempted TDS on dividends by the InvIT, which will reduce compliance requirements from unitholders/investors. InvITs have a strong potential to attract long-term capital for investing in stable operational infrastructure assets providing a steady stream of cash flows over a longer tenure.

While the Union Budget has demonstrated a positive intent and shown the future path for achieving the NIP; the focus now on executing the same would be the key.

—The author, Abhishek Gupta, Assistant Vice President, is ICRA Ltd. Views are personal

(Edited by : Ajay Vaishnav)

First Published:Feb 10, 2021 6:39 PM IST