The private sector has stayed away from investing in infrastructure, particularly in roads and railways, and a revamp of the public-private partnership (PPP) model is sorely needed to attract fresh investments to reduce the burden on government spending, said Vinayak Chatterjee.
Talking exclusively to Moneycontrol, the infrastructure industry veteran, who is also the founder and managing trustee of The Infravision Foundation, shared the thumb rule and projections for the investments needed going ahead to meet India’s infrastructure goals.
Chatterjee does not expect any major announcements from the upcoming interim budget. “The election will not be fought on an interim budget, " he said.
According to the founder-chairman of Feedback Infrastructure, private sector interest in renewable energy will be sustained even as India’s coal-based projects will primarily remain financed by the public sector as global financiers shy away from these projects on climate change concerns. Edited excerpts:
Do you expect any major announcements for the infrastructure sector from the upcoming interim budget?
Nothing major is expected from it. I would be very happy if there were no changes in policy in the budget because that is political etiquette in an election year. This is just to keep business going for a few months and we don’t expect any dramatic announcements.
Private sector capex has been muted in the last few years. But some data, like from the Centre for Monitoring Indian Economy (CMIE), indicate that there has been some pickup in private sector capex. How do you read this?
CMIE data refers to the overall capex in the economy. I would like to restrict my comments to infrastructure. There is still a lot of reluctance among private sector boards about the sanctity of PPP, particularly BOT (build, operate, transfer) projects, where they have to put balance sheet money for 15-30 years. There is still a huge degree of apprehension and the appetite will remain missing unless the government demonstrates some very clear changes in the PPP structure. The finance ministry has restrained NHAI (National Highways Authority of India) from raising further loans. As a result, fresh orders from NHAI have dipped substantially. MoRTH (Ministry of Road Transport and Highways) and NHAI are working at breakneck speed to recraft the model concession agreement. The new PPP model is expected to take away the many ills of the older model and create a far more level playing field. There is a strong case to revise the BOT model in the road sector because NHAI may not be in a position to raise more debt. This is a work in progress and we look forward to seeing what the new format will be.
Private sector participation in PPP has completely dried up and even heavyweights like Larsen & Toubro have decided to not participate in developing projects; they would rather just be contractors. Do you see a broad revival in capex?
The revival of PPP is a story waiting to unfold; it can move in either direction. Two major transport sectors—railways and roads—have not seen any substantial investments from the private sector in greenfield developments. But there are still sectors where private sector investment is coming in, such as is in renewable energy. Both domestic and international private investment is coming into solar, wind, pump storage, etc, because of the nature of the contracts and the assurances available.
For coal thermal, there are a lot of restrictions on financiers due to ESG (environmental, social, and corporate governance) issues. But India is committed to adding 10,000-20,00 megawatts of fresh coal capacity now per annum in the medium term. I believe a large portion of that will be done by the public sector because global private financiers are unwilling to finance coal today because of climate change concerns.
There is a very strong interest in investing in social infrastructure; there is a scramble to invest in new hospitals because there is such an untapped demand there. That’s one space where the private sector is moving in aggressively. On the digital side, there is a huge move to create data centres. Some interest is coming into ropeway projects too but the broad story is that the private sector is still not going to reach the level that we saw at the end of the 12th Plan (referring to the five-year timetables set by the erstwhile Planning Commission), where of the total infrastructure investment, the private sector accounted for around 38 percent. That was the peak, now the share will not be more than 5-7 percent.
Do you anticipate a gap in the investment needed and what the private sector may want to invest? Will the government have to keep pushing its capex?
Broadly speaking, to meet India's aspirations of providing quality infrastructure to its people, we need a minimum of 8 percent GCFI (gross capital formation in infrastructure as a percentage of GDP). At current market prices, our GDP is Rs 330 lakh crore, 8 percent of this as infra investments means Rs 26 lakh crore. So ideally, India should have spent Rs 26 lakh crore when the current fiscal ends if we want 8 percent GFCI. Some back-of-the-envelope calculations based on the CAG’s (Comptroller and Auditor General of India) recent report this year indicate that the central government is likely to do capex of about Rs 10 lakh crore.
Typically, the thumb rule in the infrastructure sector is that when the central government spends, say, X amount, an equal X amount comes from the other three players—states, the private sector, and EBR (extra-budgetary resources). In FY24, at worst, India will be doing Rs 20 lakh crore spend, and, at best, it may even touch Rs 22 lakh crore-23 lakh crore. It is still lower than 8 percent GFCI which will be Rs 26 lakh crore, but it is still within striking distance.
Based on this math, next year, if the GDP grows in current price terms at 12 percent, which includes 7 percent growth and 5 percent inflation, it will be at Rs 370 lakh crore. Using the same thumb rule, 8 percent of this is Rs 30 lakh crore and if the central government has to do half of it, the budget allocation would have to be Rs 15 lakh crore.
Given that the last budget allocation was Rs 10 lakh crore, this would translate into a 50 percent increase in the next budget. This takes into account the fact that private sector interest is still not fully there. This math can be extrapolated to assess the requirements of the country and how much the government will have to spend in the years ahead.
In the last budget, the government extended the moratorium of the 50-year interest-free loan aggregating to Rs 1.3 lakh crore that state governments have by another year. Do you think there will be some announcement on that in the interim budget as well?
Yeah, I think they will extend it. I do not think the whole amount has been utilised; they will extend it.
Do you expect any announcement on asset monetisation in infrastructure in the budget?
It has not been a satisfying story. The total disinvestment across sectors as well as infrastructure monetisation has been far below expectations. But we can’t expect these announcements in an interim budget.
Do you expect some announcements given the upcoming general election?
I doubt it. The election will not be fought on an interim budget.
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