New Delhi: To bolster investment in the country, the task force set up to finalise the ambitious Rs 111 lakh crore National Infrastructure Pipeline (NIP) has suggested aggressive asset monetisation, including setting up of a land management corporation, levying user charges for availing infrastructure services and allowing setting up of more development finance institutions in the infrastructure space.
According to a report by the task force, made public Thursday, the government has decided to launch a pipeline of infrastructure projects in December to bolster investment.
The report was submitted to Finance Minister Nirmala Sitharaman Wednesday.
The task force is headed by the Department of Economic Affairs secretary, Atanu Chakraborty.
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Key highlights of the report
The investment envisaged between fiscal years 2020 and 2025 is a mix of private and public investment. While around 18-20 per cent of the pipeline is expected to be financed through the central government budget, around 24-26 per cent is expected to be financed through the state’s budget.
The report further envisaged raising 31 per cent of the required resources through debt from bond markets, banks and non-bank financial companies (NBFCs), and around 4-10 per cent as equity from private developers, external aid multilateral and bilateral agencies and internal accruals.
However, a funding gap of around 15-17 per cent is estimated. To fill it, the task force suggests asset monetisation by the Centre and states and setting up of new development finance institutions (DFIs).
These calculations, though, may get impacted as Covid-19 imposes a massive strain on central and state government budgets.
The report also predicts that the highest investment will be required in the energy sector, followed by roads, urban infrastructure, railways and then irrigation.
The task force has estimated that India will need to spend $4.51 trillion on infrastructure by 2030 to realise the vision of a $5 trillion economy by 2025, and to continue on an escalated trajectory until 2030.
Of the NIP’s total Rs 111 lakh crore budget, Rs 44 lakh crore (40 per cent) worth of projects are under implementation, Rs 34 lakh crore (30 per cent) worth of projects are at the conceptualisation stage, and Rs 22 lakh crore (20 per cent) worth of projects are under development.
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Levying of user charges
Infrastructure ministries need to work out ways to recover costs of economic infrastructure services through rational user charges that are indexed to inflation, the report said.
It pointed out that while, for a consumer, the lowest possible price is desirable, from a practical point of view, not all infrastructure can be provided at subsidised rates or for free given the limited availability of sources of funds.
While recommending that subsidies should be passed on to consumers directly through Direct Benefit Transfer (DBT), the task force said that infrastructure services should be left to function commercially.
“Free services can often be overused leading to dire consequences, especially for limited natural resources such as water. Fair value is also important as the need is to provide quality infrastructure to end users,” the report stated.
Currently, many states including Maharashtra and Uttar Pradesh, have fixed user charges for water but they are too nominal and inadequate in terms of the expenditure incurred in providing the service.
A carefully defined user charge, the task force said, will provide more clarity for investors, which in turn will spur more investments.
The report added that by recovering the costs of infrastructure services, the government/private player could use resources for expanding or upgrading services, thus helping in the overall development of the economy.
The task force has also recommended autonomous regulation of tariffs.
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Asset monetisation
The task force has also batted for aggressive asset monetisation through sale of land, long-term lease with significant upfront lease payment for non-operational assets, infrastructure investment trusts (InvITs), sale of portfolio of assets to strategic/financial investors, and loan asset monetisation.
“Asset monetisation is another method in which asset owners can reduce their debt burden or churn their asset portfolio for further investment. It will also help GOI (government of India) reduce the debt burden and free up resources for better use,” the report said.
The report proposed setting up of a National Land Management Corporation registered under the Companies Act to act as the facilitator for land monetisation and as an asset manager for lands owned by the Centre and Central Public Sector Enterprises.
“A systematic and specialised way of monetising land assets could unlock greater economic benefits for the government and also assuage the restricted supply of land,” the report said.
Ensuring timely completion of projects
The report also suggested a mechanism wherein projects with a total cost of more than Rs 500 crore and facing a delay in project completion, land acquisition, or other approvals for more than six months may be monitored by a Cabinet Secretary-headed committee. Projects less than Rs 500 crore will be monitored by an inter-ministerial committee.
Strengthening municipal bond market in India
With an eye to rev up India’s decrepit urban infrastructure, the task force called for strengthening the municipal bond markets.
At present, grants from both state and central governments dominate the municipal financing landscape in India. But, these grants are substantially lower than the investment requirement of local governments.
“In order to augment their funding sources, it becomes critical that these local governments start tapping the bond markets,” the report states.
Currently, eight local bodies in India have raised Rs 3,390 crore via municipal bonds. By 2024, 50 cities are expected to issue municipal bonds.
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No amount of financial juggling, out of the box thinking can help unless the real cause of persistent financial weakness – the unconscionably high salaries, perks & pensions of Govt – is confronted.