1. FinancingInfrastructure: Mobilizing Resources and Exploring New Instruments
- Alternative methods of resource mobilization
- Developing brownfield assets as a separate asset class for infrastructure investment
- Internalizing the externalities of infrastructure: Mainstreaming value capture finance
- Financing urban infrastructure: Rationalizing property taxes and user charges
Poor infrastructure continues to remain a major bottleneck in the quest for high and inclusive economic growth. Besides institutional and regulatory issues, lack of finance is often viewed as the major reason for slow pace of infrastructure development in most developing countries. As per the McKinsey (2017) report, the world needs to invest US$3.7 trillion annually on economic infrastructure through 2035, and underinvestment in critical and new infrastructure would erode future growth potential and productivity. India alone requires over US$1.5 trillion in investment over the next 10 years to bridge the infrastructure deficit that exists in the country. However, there are many financing constraints that deter viable investments in infrastructure projects.
Main sources of infrastructure finance are budgetary support, internal and extra budgetary resources of the public sector enterprises and private investment. Private participation in infrastructure is mainly in the form of Public-Private Partnerships. PPPs supplement resources and improve efficiency of infrastructure investments. As per the Private Participation in Infrastructure database of the World Bank, India is second in the developing world both by the number of PPP projects as well as associated investments. India’s success in private participation in infrastructure is built on standardization of contracts, scheme of viability gap funding that provides grants to the private sector to a maximum of 20 per cent of project costs, and a robust regulatory structure.
Bank financing, the main component of debt finance to infrastructure, suffers from asset-liability mismatch. To address this issue, India is keen to develop brownfield assets as a separate asset class for infrastructure investment. Brownfield assets are in the operational stage and are thus considerably de-risked as they are past land acquisition and environment and forest clearance stage. This makes them amenable to long-term institutional investment from pension, insurance and sovereign wealth funds. In the road sector, India has successfully launched the Toll-Operate-Transfer model as an example of development of brownﬁeld assets as a separate asset class. Financial vehicles like Infrastructure Investment Trusts (InvlTs) and Real Estate Investment Trust (REITs) have also been launched for the same purpose.
Another opportunity is to make extensive use of Value Capture Finance (VCF). This refers to Government internalizing some of the externalities that infrastructure projects create. Appropriate VCF tools can be deployed to capture a part of the increment in value of private land and buildings that infrastructure projects create. This, in turn, can be used to fund increased public investment, creating a virtuous cycle in which value is created, realized and captured, and used again for public investment. Some VCF tools are already being used in urban India like conversion charges, betterment charges, and impact fees. The need is to standardize the use of VCF tools so that they are used more extensively with all public infrastructure investments. Along with these innovative financing tools, the effectiveness of conventional instruments such as property taxes and user charges should be strengthened.
2. Building Resilient and Quality Infrastructure
- Smart cities
- Renewable energy
- Adaptation and climate risk mitigation
- Quality infrastructure
- Regional connectivity and development of aspirational areas
While adequate stock of economic and social infrastructure is critical for growth and development, the emphasis on resilient and quality infrastructure is desirable for improving the socio-economic outcomes of infrastructure projects and sustaining these outcomes.From this perspective, three factors i.e. efficiency, safety and sustainability determine the success of infrastructure projects in the development process. This paradigm also underscores the importance of resilience against disaster risk and quality, thereby mainstreaming maintenance of infrastructure assets.
With the aim of boosting quality infrastructure in cities, the Government of India has launched the ‘Smart City Mission’ which aims to cover 100 cities in the country. India, like the world, recognizes urban areas to be engines of growth. The principal objectives of this mission are to provide core infrastructure, give a decent quality of life and a clean and sustainable environment to city dwellers, using ‘Smart’ Solutions that are technology driven. A total investment- of Rs 191,155 crore (US$ 30 billion) has been proposed by the 90 cities. With the aim of revamping and overhauling the urban ecosystem and making it inclusive, the Government of India has also launched new flagship missions like the PradhanMantriAwasYojana (or Affordable Housing Mission), Atal Mission for Rejuvenation and Urban Transformation (AMRUT), and Swachh Bharat Mission (or Clean India Mission) which incorporate features of resilient and quality infrastructure.
Another pertinent issue which necessitates immediate attention is the impact of climate change on different sectors like agriculture, water resources, cities and coastal ecosystems. Increase in Green House Gas(GHG) emissions and consequent rise in temperature have potential adverse effect on developing countries, making poor and marginalized sections more vulnerable. In that perspective,focus should be on building green and resilient infrastructure to address climate change risk. It is worth mentioning that India has committed to have renewable energy capacityof 175 GW by 2022. However, renewables face critical challenges like scalability, intermittency and the associated need for storage. These characteristics pose a formidable roadblock for integration of renewable sources into energy systems of countries. For developing countries to adopt and expand renewable energy infrastructure and effectively address associated risks, finance and technology need to be leveraged from the developed world. International Solar Alliance(ISA) initiated by India and France is a platform for like-minded countries for effective coordination in realizing this goal.
Distribution aspects are equally important in conception, planning and formulation of infrastructure development in developing countries. Inaccessibility and unequal distribution of infrastructure often result in regional imbalances. For instance, the coastal states in India have experienced higher growth relative to the land-locked states. Similarly, eastern and north-eastern parts have demonstrated less impressive performance compared to western India. For infrastructure-deficient regions, the Governmentof India has invested in various developmental projects including power transmission, building of railways, roadways and inland waterways. To drive balanced growth in the country, various infrastructure programs have been launched includingSagarmala, Bharatmala, SetuBharatam, and PradhanMantri Gram SadakYojana.
3. Embedding Innovations in Institutions, Technology and Modalities
- New age mobility projects (High Speed Rail, Hyperloop, seaplane)
- Innovative financing modalities ( Toll-Operate-Transfer and Hybrid Annuity Models, Infrastructure Investment Trusts, Real Estate Investment Trusts)
- Innovative technologies
- Institutional innovations
Under futuristic infrastructure, feasibility of new age mobility projects in terms of High Speed Rail (HSR), Hyperloop , electric vehicles and seaplane as amphibious multi-modal mobility for masses are being considered for implementation. The Government of India has approved the Mumbai-Ahmedabad High Speed Rail project in December 2015 to be implemented using Japanese Shinkansen technology. The Digital India initiative (including BharatNET) has already created massive digital infrastructure. Services launched under the Digital India initiative are supplementing efforts under Smart City Mission.
The Government of India has introduced multiple institutional and financial innovations in the infrastructure sectors in the form of innovative financial vehicles such as Infrastructure Debt Funds, Infrastructure Investment Trusts (InvITs), Real Estate Investment Trusts (REITs), Alternative Investment Funds, andnew models of Public Private Partnerships (PPPs). So far as PPPs are concerned, the Government of India has tried out monetization of public-funded highway projects under Toll-Operate-Transfer (TOT) model and construction and expansion of highway projects under Hybrid-Annuity-Model (HAM). Under TOT model functions of operation, maintenance and collection of fee is assigned for a 30 year concession period to investorsand developers against upfront lump sum payment to the Government. The HAM for road construction involves government sharing 40% of construction costs initiallywith the private sector. Under the BharatmalaPariyojanaHAM should make up for 60 percent of projects followed by 10 percent under BOT (Toll) and remaining on Engineering, Procurement, and Construction (EPC) Mode. On the other hand, for NHAI projects it has been reported that Banks/ financial institutions are now showing keen interest in HAM and financing of HAM projects is now happening smoothly.
The newly established National Investment and Infrastructure Fund (NIIF) promotes investments from both domestic and international sources for infrastructure development in commercially viable projects, both greenfield and brownfield, including stalled projects.
4. Forging Collaboration and Partnerships: Evolving Strategies andCollective Actions
- International Solar Alliance
- Bhutan–India Hydro power alliance
- Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project
Cross-country collaborations for building infrastructure are becoming common these days. While cross border oil and gas pipelines were till recently cited as the most striking examples of such collaboration, other sectors are increasingly being drawn into such partnerships. Ports, roads, railways, water supply systems and digital networks are some of the sectors where nations are evolving joint strategies for best results. While these collaborations provide synergies, they also create fresh challenges for project implementation across countries. It is important to draw upon such experiences to guide policy makers as well as investors in forging future cross-country partnerships.
There is a need amongst countries across the globe to collaborate to ensure that renewable energy is mainstreamed in the energy mix. An example of such collaboration would be the India based ‘International Solar Alliance’ (ISA), representing a coalition of solar resource rich countries, launched with the aim of using solar energy to meet energy requirements in a safe, convenient, affordable, equitable and sustainable manner. It aims to deploy over 1000 GW of solar energy and mobilize more than US$1000 billion of investments into solar power by 2030. ISA is open to 121 prospective member countries, of which 61 countries have signed the ISA Framework Agreement and 33 countries have ratified it . ISAformally acquired the status of ‘International Organization’ in December 2017.
India–Bhutan partnership in the hydropower sector is another illustration of a successful and mutually beneficial collaboration where renewable energy is used for supplementing the energy requirements of a country. This partnership not only provides clean electricity to India but also generates export revenues for Bhutan. So far, the two countries have signed several agreements for joint development of hydropower projects. Projects that have been commissioned include 336 MW Chukha Hydropower Project, 1020 MW Tala Hydroelectric Project and 600 MW KholongchuHydroelectric Project .
India also plays a pivotal role in strengthening connectivity within the ambit of Heart of Asia (HoA). One such example is the approx. 1,600 kilometer long Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline that will export nearly 33 billion cubic meters of natural gas annually from Turkmenistan to Afghanistan, Pakistan and India . It is expected that this project will not only help in supplementing energy needs of the countries involved but will also promote peace among them.
5. Panel Discussion with Chief Ministers on Vision of Infrastructure Development in India
- Regional development
- Financial hubs (e.g. GIFT City)
- Industrial and software parks
- New capital city – Amravati, Andhra Pradesh
Government of India has recently taken several steps to strengthen India’s federal structure in the framework of ‘Cooperative Federalism’. The State Governments are principal stakeholders and partners in Government of India’s schemes and programmes. State Governments have been taking the lead to speed up development with strong focus on infrastructure. However, States are at various levels of development and some regions lag behind on key development and infrastructure indicators.
Many State governments are pursuing transformative approaches and undertaking robust and futuristic projects in infrastructure. This spans across connectivity (road, rail, air and inland waterways development), smart cities, sanitation, logistics hubs etc. The NITI Aayog has recently formed ‘Niti Forum for North-East’ to identify various constraints on the way of accelerated, inclusive and sustainable economic growth in the North East Region. The forum has identified focus areas for infrastructure development epitomized by the concept of "HIRA" (diamond in Hindi) which stands for Highways, Internet, Railways and Airways.
High-tech financial hubs are being established to provide enabling regulatory environment, and create an ecosystem to increasecapital flows, expand domestic base of financial services, and promote talent. The Gujarat International Finance Tec-City (GIFT) has been developed as a global financial and IT services hub. This is emerging as an international financial centre in India with huge potential for providing favorable regulatory regime and business environment for infrastructure financing. Earlier, establishment of software technology parks (STPs) in 1990s represented an important institutional intervention to provide infrastructure for the software industry.
The vision of modernisation and sustainability behind new capital cities, tier-2 cities, industrial towns, integrated mobility and rural infrastructure reflects potential for leapfrogging in the decades to come. The new capital city of Andhra Pradesh,Amravati has futuristic design of world class standards, cutting-edge infrastructure, and promise of comfortable and sustainable living.
Local experiences with respect to financing and implementation of infrastructure projects provide vital inputs to policymaking. Governments in different States have varied and rich experience to share with other States and stakeholders at large.