The union budget assumes that 6 per cent of India’s GDP will be invested in infrastructure, with about 25 per cent of it expected to come from the private sector and public-private partnerships. Of this, around 70 per cent will be debt financing. The budget itself accounts for 42-46 per cent of such funds, while banks will contribute 8-10 per cent, infrastructure NBFCs will lend 15-17 per cent, corporate bonds will contribute 6-8 per cent, new development finance institutions will contribute 2-3 per cent, asset monetisation will provide 3-5 per cent, and other resources will make up 7-8 per cent. Notwithstanding these contributions, there is a big financing gap, which can be met by tapping existing financing routes more effectively as well as finding new alternative sources. CRISIL estimates that infrastructure expenditure will double in the next seven fiscals, hitting about Rs 143 trillion. This makes it imperative to find more funding.
While key challenges such as land acquisition issues and slow environmental approvals remain, these have been addressed to some extent through streamlined single-window clearances and the implementation of the goods and services tax. An improved policy environment, including smarter MCAs, the introduction of the IBC and determined efforts towards asset monetisation have helped reduce NPAs across infra segments to around 3 per cent in financial year 2023 from the high of 25 per cent in 2007-12.
Conventional banking and NBFC financing has improved along with the policy environment. Specialised InvITs have sprung up, aiding in the funnelling of money into infrastructure as well as in fast-tracking asset monetisation. Approximately Rs 1 trillion has been invested in 23 registered InvITs. The National Highways Authority of India and Power Grid Corporation of India were among the first to launch InvITs. Industry experts estimate that InVITs may grow sevenfold over the next five years.
Apart from InVITs, institutions such as India Infrastructure Finance Limited and India Infradebt have made a difference, with the former being focused on green energy, while the latter has secured investments from insurance companies, pension funds and provident funds.
Policymakers need to look at certain specific areas for urgent action. One such area is energising the bond market. India’s bond market has grown 3.5 times from Rs 12.9 trillion in 2013 to Rs 45 trillion in 2023, but it could grow to Rs 100 trillion-Rs 120 trillion by 2030. Bonds account for about 15 per cent of current infra funding (mostly for PSUs), and the contribution needs to grow.
Another focus area should be shoring up municipal finances, and strengthening municipal balance sheets and accounting processes. Given the rapid pace of urbanisation, ULBs need to raise significant finances. According to the IFC, only about 23 cities currently meet the criteria for commercial borrowings. There is a need to review policy and undertake necessary reforms to improve municipal access to financing, along with the augmentation of existing revenue streams and exploration of new mechanisms.
The reinstatement of Section 80CCF of the Income Tax Act, commonly known as tax-saving bonds, could serve as a supportive measure to tap household finances. Another untapped route is corporate treasuries, which could help fund infrastructure development.
Disintermediation is another concept that is worth reviewing. By segmenting project investments into strip structures with different tenors, asset-liability mismatches that inhibit bank financing, for example, could be mitigated, and it would be easier for debt mutual funds to step in at the lower end of tenors.
There has been a lot of activity in the sector, and policy certainly seems to be on a sound footing. But much more needs to be done to meet the targets of the NIP.