Infrastructure has been a major area of focus of the Union government to steer India’s economy towards the $5 trillion level and for that, it has brought various schemes and policies. The Union Budget for 2023-24, which is being looked upon as a platform for financial reforms, is expected to reveal the broad policy stance of the government towards multiple sectors including infrastructure and energy. The Ministry of Power recently released a detailed plan that chalks out a comprehensive proposal for the evacuation of power from the renewable generation capacity that would come up by 2030. It envisages additional transmission growth opportunities with investment worth Rs 2.4 lakh crore. These developments signal the resolve of the government to transform and transition the power sector towards clean energy.
Prioritise Clean Energy
Transmission and distribution are crucial levers in the efficient delivery of electricity across the country. The industry expects higher budgetary allocation to improve the efficacy of the distribution sector, while also building the transmission evacuation capacity. This is important for kickstarting growth in renewable investment after a recent plateau in the space where the initial investment euphoria has now given way to consolidation and fresh capital avenues getting limited. We expect the focus of Budget 2023 to be on overhauling the power sector with new clean power generation centres, enhancement of transmission & distribution infrastructure, installation of battery energy storage capacity, promotion of round-the-clock energy solutions and implementation of supportive policies for better utilisation of the budgetary allocations.
However, all the above initiatives will require an enormous amount of capital investment. The green energy corridor for the transmission of green power has been already initiated but it needs drastic reforms to enable more capital investment and better transparency around distribution and billing. Private funds and diverse sources of funds across the power supply chain will bridge the massive funding gap persisting today. There needs to be an urgency around the privatisation of discoms. The UDAY scheme has been implemented but it has not delivered the desired results.
The implementation of the National Monetisation Pipeline on a fast-track mode is imperative now for the purposes of channelising funds from the private sector. Over the last few years with the advent of InvITs and other policy interventions, we now have tailor-made funding avenues to unlock capital invested in existing assets and invest it in greenfield assets. Recently, the Ministry of Power issued guiding principles for monetisation of transmission assets in the public sector through acquire, operate, maintain and transfer (AOMT) based public-private participation (PPP) model which will attract significant interest from long-term institutional investors, as is evidenced by successful InvIT based monetisation for transmission assets. We expect the government to announce policy actions in Budget 2023 to deepen the financial avenues and to ensure that a regulatory framework around monetisation is implemented to enable the National Monetisation Pipeline and the National Investment Pipeline to meet their proposed timelines. Any delay will have a cascading effect on infrastructure creation.
Support From Budget
It is a no brainer that InvITs will play a larger role in attracting private capital through foreign as well as domestic investors in the next decade. InvITs and REITs together have over Rs 3.5 lakh crore of assets under their management from sectors like power transmission, roads and telecom. They have raised more than Rs 75,000 crore alone in 2020-22. InvITs have not only generated capital but they have also enabled democratic ownership of infrastructure assets - from being owned by governments or institutions, retail investors are now part owners. These vehicles are capable of generating capital investment of about Rs 8 lakh crore over the next 4-6 years.
To increase competitiveness, scalability and enablement of these investment vehicles, policy initiatives are expected in the Budget. For instance, the holding period for listed units of InvITs to qualify as long-term capital asset is currently 36 months. This should get reduced to 12 months to align it with the holding period for equity and equity-oriented mutual fund units in the income tax law. That will help catalyse the participation of index funds and exchange-traded funds (ETF). It will also increase passive flows, as mutual funds ETFs track equity and equity-related securities of companies underlying the domestic indices. Similarly, introducing withholding tax on interest payments on listed non-convertible debentures (NCDs) issued by an InvIT and designating SPVs held by listed InvITs as companies will go a long way in making InvITs competitive.
Overall, the Union Budget should include policy changes and provide allocations to areas that expedite the implementation of reforms while allowing for the inclusion of diverse funding avenues.
Harsh Shah is CEO, IndiGrid. Views are personal, and do not represent the stand of this publication.