Infrastructure

Need of Infra

Set of basic physical systems of business, region or nation that is needed for proper functioning of an economy and society.

Types of Infra

1. Social Infrastructure: housing, health education
2. Economic Infrastructure: fundamental structures that support process of production and distribution in economy. eg. transportation, power, communication etc.
3. Soft Infrastructure: institutions that help maintain economy. Includes delivery of essential services to population. Human capital usually forms main component. eg. healthcare system, financial systems, education systems
4. Hard Infrastructure: physical system that is necessary for running a nation. eg. roads, highways, bridges etc.

Infrastructure Financing

• acc to 11^th FYP, approx 45% of the total infra funding comes from govt budget and 55% managed through debt & equity sources
• banks play instrumental role in infra financing

Challenges

• increase in funding gaps, esp after 2008 subprime crisis
• ECB affected after sub prime crisis and eurozone crisis
• increasing fiscal burden on govt
• challenge of asset liability mismatch (NPA crisis)
• bond market not developed in india
• legal and procedural issues
• challenges of regulatory oversight
• investment obligations on insurance and pension fund companies
• problem of land acquisitions, longer gestation period of infra projects

Measures taken by Government

1. PPP Infrastructure: refer Public Private Partnership Projects in Infrastructure
2. Viability gap funding: introduced 2006; CG provides 20% of capital cost wrt to PP project and additional 20% by sponsoring authority
3. FDI in Infra: 100% FDI allowed under automatic route in mining, power and sez
4. Setting up of infra debt fund comanies: RBI & SEBI notified guidelines for setting up IVF in form of NBFC and mutual fund companies. Govt reduced withholding tax on interest payments from 20% to 5%. Infra debt fund companies expected to channel funds from insurance companies, pension funds and other long term sources
5. Rationalization of ECB
6. Introduction of Credit Default Swaps which will strengthen banking structure

Public Private Partnership Projects in Infrastructure

• govt faces tight budget constraints in rule based fiscal policy
• introduction of Credit default swaps
• govt objectives - infra dev, welfare, meeting public needs
• PP projects have shown potential as an imp tool to meet these objectives and address infra shortages
• These projects provide new sources of capital for public infra dev by shifting the responsibility for arranging the finances to priv sector
• PPP refers to a contractual agreement between govt agencies and a priv sector entity that allows for greater priv participation in public infra projects

Advantages of PPP

• access to priv sector finance
• increased transparency
• efficiency advantage
• transfer risk to priv sector
• enlargement of focus to delivery and maintenance of service
• access to advanced tech, additional resources

Disadvantages

• project feasibility - political reasons, commercial viability
• success of PPP depends on regulatory efficiency
• perceived high risk, lack of easy exit mechanism
• stalling projects
• high regulation
• PPP ending up in courts
• increased market risk in recent past

Kelkar Committee recommendations

• contracts need to focus more on service delivery instead of fiscal benefits
• better identification and allocation of risks b/w stakeholders
• prudent utilization of viability gap funds, where user charges can’t guarantee robust revenue stream
• Infra PPP Adjudication Tribunal (IPAT) chaired by Judicial Member (former Judge) with technical and/or financial member

PPP Models for existing projects

PPP Models for Existing Projects

National Infrastructure Pipeline (NIP)

• hosted by Invest India Grid (IIG), centralized portal to track & review the progress of project
• IIG is initiative of Dept. of Promotion for Industry and Internal Trade (DPIIT)
• focus wrt integrating Project Monitoring Group(PMG) and IIG
• PMG is institutional mechanism for resolution of issues related to large scale projects and for fast tracking approvals for projects with investments of 500Cr and above

National Monetization Pipeline (NMP)

• estimated aggregate potential of 6LCr, NMP is based on principle of asset creation through monetization
• Govt leases out its public assets to private sector for operation and maintenance of assets and funds received from brownfield projects reinvested into greenfield projects

PM Gati Shakti

• good governance program; increasing coordination and reducing fund wastage
• NIP will be integrated with PM Gati Shakti; focusing on seven grown engines - Rail, Road, Airports, Ports, Mass Transport, Waterways, Logistics Infra

National Logistics Polity

• Logistics: process of managing how resources are acquired, stored and transported to their final destination
• NLP aims to bring down logistics cost to 8% of GDP by 2030 (presently, around 14 - 18% of GDP)
• Logistics sector expected to grow at 15.5%
• Govt logistics polity focuses on 3 important areas
  1. Multi Modal logistics park
  2. Warehouses
  3. Cold storage or cold chain mechanism