Govt spend will boost infra but concerns around public private partnership not addressed: Vinayak Chatterjee.

The Chairman of the Confederation of Indian Industry's (CII) National Council on Infrastructure also said that the government should rethink its asset monetisation process as they are very long and cumbersome at the moment.

Edited excerpts:

The government has increased the capital expenditure for 2023-24 to Rs 10 lakh crore, what do you make of the centre’s capex plans?

I was expecting it. This government has been very consistent across the last three years in using infrastructure expenditure as the pump to drive the economy. So, when you see this trend of consistency, it was expected that the government will increase the capital expenditure to Rs 10 lakh crore.

The important point, however, is in terms of macroeconomics, the finance minister has said that the Rs 10 lakh crores represent 3.3 percent of GDP. But she also noted that the Centre’s capex is complemented by the provision made for creation of capital assets through grants-in-aid to states. This increased the Centre’s effective capex to Rs 13.7 lakh crore, which represents 4.5 percent of GDP.

This is really encouraging for the Indian economy from a macro perspective because this provides an opportunity for India’s GFCF (gross fixed capital formation) to come in at around 7.5-8 percent of GDP in 2023-24.

With the central government planning to invest a capex equivalent to 4.5 percent of GDP in infrastructure, and estimating, on a conservative side, that the state governments and private investment invest are close to 3-3.5 percent of GDP in 2023-24, India’s GFCF will certainly rise to 7.5 percent in 2023-24.

From a micro perspective, the fact that the Centre has focused on capex across the board and not just on one particular sector is an encouraging sign.

Also Read: Capital expenditure hiked by 33% to Rs 10 lakh crore for FY24

The government is also pushing to adopt the public-private partnership model across sectors. How optimistic are you about the success of the PPP model in India?

I am not particularly optimistic because I have not seen any, shall I say, strenuous or concerted attempt to address the ills of PPP, to address the issues that made PPP fall.

Whether it is the Kelkar committee report or various other suggestions to revive PPP, I have not seen any concerted action from the government to take on PPP problems head-on and create a PPP version 3 or version 4

And the only thing in the budget, there was an allusion to the newly created Infrastructure Finance Secretariat (IFS) where they will have an expert committee to take a look at providing assistance, specifically to sectors for raising capital in the harmonised list of infrastructure.

Now, that is as vague as it gets.

The big concern is that somewhere the private sector has to once again rise and deliver and for that the right PPP structure must be addressed with a sense of urgency.

The Centre’s capital expenditure for the ministry of road, transport and highways has risen to Rs 2.7 lakh crore. Is this enough to meet the ambitious target of creating 25,000 km by the end of FY24?

The roads sector in India has matured to a point where Rs 2.7 lakh crore is considered normal. Also, while Rs 2.7 lakh crore looks large, it should be noted that the National Highways Authority of India has been prevented from raising further debt.

So, effectively if you do budget grant plus debt raising ability of last year, you are not likely to see a large growth in the financing ability of NHAI.

Now, with respect to road projects, it is clear the country will find it difficult to meet the aspirational target of building 40-42 km of national highways in a day throughout the year.

And the central government’s emphasis has also shifted accordingly.

If you see in the budget for 2023-24, over and above the budget to NHAI, the Centre has kept aside Rs 75,000 crore for 100 connectivity projects.

Also Read: Road ministry gets a 36% hike in allocation at Rs 2.7 lakh cr for 2023-24

Does the limiting the NHAI borrowing show that the Centre is placing higher emphasis on asset monetisation to raise funds, instead of relying on market borrowings and government funding to push capital investment?

Yes, especially in the case of NHAI, the government is now making double efforts for monetisation. So gradually, you're seeing a rise in NHAI-sponsored InvITs (infrastructure investment trusts) and monetisation efforts creep up, but it will take some time before the proceeds from asset monetisation will be able to fund capital expenditure.

Having said that, the NMP (National Monetisation Pipeline) was not even mentioned once in the budget. And it is supposed to be an important plank of the strategy that greenfield will be done by EPC and brownfield expansion will be carried out by monetisation of assets.

But because disinvestment targets and monetisation targets have not been met, there is not even a mention of monetisation. So, it’s obvious the government is worried and not talking about it.

What are the obstacles to asset monetisation?

While the government is pushing for asset monetisation, India has shown that it is very difficult to do privatisation/disinvestment/monetisation. Something or the other in terms of blockages and obstacles comes up. Even CONCOR’s (Container Corporation of India) divestment is still pending.

Therefore, the government should look to change the rules of the game. In the current way the things are structured, it is very complex, even for bureaucrats.

There is also a subtle resistance from ministries, they don't like their assets being monetised.

The moratorium on the 50-year interest-free loan to state governments for the infrastructure sector has been extended by another year. Do you think enough support has been provided to state governments?

I think so. The Centre has set aside Rs 1.3 lakh crore for an interest-free loan of 50 years with the caveat that it has to be spent this year. That’s an important caveat, which means they want it spent to create jobs and to create employment and to create traction and multiplier effect.

I mean you can’t get more than this, and there is the Rs 3.7 lakh crores grants-in-aid to states.

What are the bottlenecks that would prevent states from using the funds provided?

The bottleneck in this case is the same as always. In our country the period taken from the ideation of a project to coming out with a workable tender takes a very long time. It takes a lot of time because it goes through many layers of bureaucracy and cabinet committee on investments and client acquisition and permissions and all of that.

That process has to be shortened. As a country, we still have a very long path from conceptualisation to the issuance of a working tender, where an EPC company can close the tender, get its capital organised and run on execution, that process takes long.

The central government has in the budget proposed to set up an Urban Infrastructure Development Fund of Rs 10,000 crore per year. Do you think this will encourage private capital expenditure going forward?

I don’t think the Urban Infrastructure Development Fund will be used to help the private sector just now, in the medium term it will.

It is to encourage to spend money to aid, assist and develop capacities in municipal towns so that they get ready to issue municipal bonds. Therefore, it will certainly have a positive impact in the medium term when projects start coming out, but not immediately.

India has 6,000 towns and cities, you have these urban local bodies. So the whole effort is to get them ready to start issuing municipal bonds. That's a Herculean task.

Also Read: Budget 2023: Govt to spend Rs 10,000 crore per year for urban infrastructure development fund