Interview with B. Purushartha: “IFS will evolve into an all-encompassing platform”

The scale of India’s infrastructure development requires the active involvement of all key stakeholders. In this regard, the establishment of the Infrastructure Finance Secretariat (IFS) as a cross-sectoral platform is an innovative and groundbreaking development. The IFS aims to significantly increase capacity and capabilities, address structural issues and develop a robust framework for public-private partnership (PPP) for the nation as a whole. In an interview with Indian Infrastructure, B. Purushartha, Joint Secretary (Infrastructure Support and Development Division), Infrastructure Finance Secretariat, Department of Economic Affairs (DEA), Ministry of Finance, shares his views on the importance of stakeholder collaboration at all levels, the need for a multi-pronged approach and the significance of enhancing the infrastructure financing ecosystem.

What is the mandate of the IFS?

The central government comprises multiple mi­nistries responsible for infrastructure development, such as the Ministry of Road Trans­port and Highways, the Ministry of Ports, Ship­ping and Waterways, the Ministry of Civil Avia­tion, and the Ministry of Power. The National Infrastructure Pipeline lists around 22 such ministries. Moreover, if the state governments and union territories are taken into account, the number of government entities involved in India’s infrastructure growth get multiplied geometrically. However, until now, there was no central entity that could serve as a focal point for anchoring infrastructure policies and programmes.

Furthermore, there is a theoretical and an implementation aspect in the realm of infrastructure. The theory determines the optimal mode of infrastructure development – whether it should be exclusively government-funded, or through PPPs or entirely privately funded. Simi­larly, on the implementation front, while gro­und-level project implementing agencies play a bigger role in creating physical infrastructure, they are unable to identify and resolve industry/sector-specific issues. This apart, infrastructure financing in India is fraught with challenges such as the vagaries of influx of funds for infrastructure development and their effective geographical and sectoral distribution. These complications can be addressed by a ce­ntral entity, which will unlock the Indian in­fra­structure sector’s long-term potential. This gap is being bridged by the newly minted IFS, hou­s­ed under the DEA, Ministry of Finance.

Thus, the mandate of the IFS is to work as the central nodal agency for coordinating and supporting central line ministries, state governments and local bodies in the generic arena of pan-India infrastructure development. The IFS, with the assistance of subject matter experts from multilateral institutions, facilitates an ar­ray of initiatives including policy formulation, initiating infrastructure financing reforms, improving appraisal and approval mechan­i­s­ms, and supporting programmes and sche­m­es. The IFS thus provides cross-cutting coverage of a broad range of expertise, multilateral par­ticipation and a 360-degree perspective for infrastructure development.

What are the current initiatives of the IFS?

To achieve the vision of creating an “integrated infrastructure development ecosystem”, the initiatives undertaken by the IFS can be broadly id­entified as three converging pillars – infrastr­ucture knowledge creation, infrastructure fi­nancing and infrastructure capacity building.

Within the realm of infrastructure development, a comprehensive PPP framework, which can be used by the central ministry and states, is essential. For infrastructure knowledge creation, several guidelines, principles and reference documents to aid decision-making regar­ding the mode of implementation and project financing are being prepared. A prerequisite for the successful execution of PPPs is the availability of various forms of reference materials and guidelines. The Public Private Partnership Appraisal Committee, responsible for the ap­p­raisal of PPP projects at the Centre, is also ser­viced by the IFS. Moreover, model concessi­on agreements (MCAs) are crucial for any sector to standardise bid processes. Over the cour­se of eight months, two MCAs, currently awaiting ap­proval, have been drafted by the IFS, one for a sports stadium and the other for a solid waste management system.

Going a step further, the IFS has undertaken collaboration with states in order to comprehend their vision and strategies, identify any po­tential roadblocks and suggest remedial measures.

It has also undertaken infrastructure finan­cing in a big way. The government has brought in several financial reforms to invigorate the in­frastructure sector including, the abolishme­nt of the dividend distribution tax (DDT) under the Finance Act, 2020; exemption of dividend payout to real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) from TDS; 100 per cent tax exemption provided to sovereign wealth funds; permissibility of debt financing of REITs/InvITs through foreign portfolio investors; permissibility of infrastructure debt funds to raise funds by the issuance of tax-efficient zero coupon bonds; capitalisation of existing development financial institutions with additional equity support and establishment of the National Bank for Financing Infra­structure and Development; promotion of the revamped India Infrastructure Project Develop­ment Fund (IIPDF) scheme and the viability gap funding (VGF) scheme to enable financial as well as technical assistance to project sponsoring authorities (PSAs); issuance of sovereign green bonds to promote the development of green infrastructure; etc.

Undertaking infrastructure projects, particularly in PPP mode or through innovative mo­des of financing, requires a specialised skilled pool of manpower not readily available among public authorities. Thus, the IFS is spearheading capacity building initiatives at various levels of the government. Till date, the IFS has provided training to over 1,100 individuals across st­ates. Until last year, training was conducted th­rough on-campus mode in collaboration with premier institutes. However, the IFS is currently working on developing online toolkits to facilitate capacity building through massive open online courses.

What is the interaction between the IFS and NITI Aayog?

NITI Aayog and the IFS work in sync with each other and contribute to infrastructure policy, programme, promotion, state interactions, knowledge creation and dissemination.

In addition to working with stakeholders that are seeking investment, do you also provide guidance to financiers?

One of the key functions of the IFS is to promote infrastructure financing. Currently, the IFS is working on a spectrum of infrastructure financing issues. It interacts with all stakeholders in­clu­ding financiers, sectoral regulators and in­ves­tors. The IFS is also working on various financial instruments, how they can be utilised more eff­ectively, and initiatives that can catalyse the flow of capital into infrastructure projects. In additi­on, it is engaged in the development of credit en­hancement facilities and the potential of muni­cipal bonds.

What is your opinion on the potential of urban local bodies (ULBs)?

ULBs have tremendous potential. The majority of municipal corporations have not yet tap­p­ed their full potential. For example, the majo­rity have not reaped the be­nefits of property tax. To drive their overall investments, mu­­nicipal corporations need to move beyond go­vernment support.

A framework for value capture financing also exists; however, ULBs have to reap its benefits. Similarly, urban land reforms also have great potential but are underutilised due to factors such as a lack of understanding, capacity, or willingness. The IFS aims to nudge muni­cipal corporations to brainstorm, discover and implement solutions.

Is the IFS assisting private developers?

The IFS provides indirect support to private developers in the form of the IIPDF. Under the revamped scheme, the grant for hiring transaction advisers has been enhanced up to Rs 50 million per project. For instance, if a PSA, without having any prior experience, wants to develop a project in PPP mode, technical advisers and consultants can be hired though funding under IIPDF scheme. In addition, the IFS has empanelled transaction advisers for PPPs on a single platform for any interested PSA. Further, the VGF scheme of the IFS supports private de­velopers. If a project is commercially unviable, but economically desired, VGF support makes it commercially feasible.

How does the IFS collaborate with multilateral agencies? Does it assist them in identifying projects?

The Asian Development Bank and the World Bank have provided support to the IFS in terms of manpower and expertise. Financial aid, however, depends on the project requirements. A division within the DEA receives project proposals from the central and state governments for such financial assistance from multilateral agencies. These proposals are assessed and then recommended to multilateral agencies.

In the near future, what are the potential are­as of expansion for the IFS?

In the coming years, we are hopeful that the IFS will inevitably evolve into an all-encompassing platform, which will also encourage project implementation. Going forward, the role of the IFS is set to enlarge in congruence with the growing requirements of infrastructure development and the IFS could prove to be one of the most crucial pieces in India’s infrastructure financing and development endeavour.

“The IFS provides cross-cutting coverage of a broad range of expertise, multilateral participation and a 360-degree perspective for infrastructure development.”

“Going forward, the IFS could prove to be one of the most crucial pieces in India’s infrastructure financing and development endeavour.”