August 2016: Letter from the Publisher

Letter from the Publisher

With this issue, we celebrate our eighteenth anniversary. As before, we take this opportunity to reflect on the state of the infrastructure sectors and the key trends.

There is certainly more activity in most of the sectors. Capital expenditure in railways is up by more than half over last year. The number of road contracts awarded has increased by one-third. There has been record capacity addition in the year by major ports. The concession for one major new airport has just been awarded and another one is expected later in the year. This increase in activity is evidenced most in the sale of construction equipment which is up dramatically, after a slump of several years.

While the increase in government expenditure is perhaps the biggest reason for the present progress, there is also increased optimism about the future. This is because of the many new policy initiatives launched by the government. These include the Hydrocarbon Exploration and Licensing Policy, New Civil Aviation Policy, 2016, Central Port Authorities Bill, 2016, UDAY, etc.

The government has also taken many incremental steps to reduce the pain for stressed projects and ease the process for new projects. The environmental clearance process has become less cumbersome. There is a new mechanism for dispute resolution. There is also more give and take between the government and industry (within political constraints, of course).

There is also new money flowing into the sector, in the form of foreign long-term institutional investments. We have seen some ground-breaking deals, led by Canadian pension funds. To be sure, their focus is on assets already in operation, not greenfield projects. They are looking for lower risk, but are also happy with lower returns. These deals will not only help some stressed developers but also free up capital for reinvestment in new projects.

At the same time, the attempts to tap domestic insurance and pension funds for infrastructure development have not been very successful, given the sectoral/corporate limits and high rating requirements. The big exception, and it is very big indeed, is the Rs 1.5 trillion LIC financing facility for railway projects.

There has also been some progress in the areas of infrastructure bonds, credit enhancement strategies and refinancing options, with IIFCL playing a more proactive role. On the other hand, the much-anticipated National Investment and Infrastructure Fund is yet to materialise.

Money for private projects is not easily available and the cost of capital is still high. Commercial banks, still the primary source of infrastructure finance, are reluctant to lend. The interest rate cuts by RBI have not been adequately transmitted. This situation is not likely to improve in the near future, with NPAs continuing to increase and the various initiatives like SDR and S4A not having had immediate success. All this while banks have to contend with the new Basel requirements.

There are many other issues that remain unaddressed and sectors or segments that have not seen much progress. These include the lack of an independent regulator for the road and rail sectors, the lack of progress on captive coal blocks, poor discom finances, inadequate investment in water and waste management, etc., etc.

But overall, there are signs of revival and some cause for optimism. Let us hope that we are reading the tea leaves correctly and the optimism is not misplaced.

P.S.: We also take this opportunity to rededicate ourselves to the mission of the magazine: to be the most trustworthy source of information and analysis for the Indian infrastructure sector. We would also like to thank our readers, editorial contributors and advertisers for their continued support.