Experts caution on building debt and project risks while planning to push growth through thrust to infrastructure, at IIMK Kozhikode’s Inaugural Programme on Infrastructure Financing

Kozhikode: A week-long Programme on infrastructure financing at IIM Kozhikode, inaugurated by Hon’ble Minister for Road Transport and Highways (MoRTH), Shri Nitin Gadkari, came to a close here today. The programme, where foremost experts on infrastructure financing shared frank views, concluded that while India was making rapid strides on infrastructure there was no easy solution to meeting the infrastructure financing gap. They cautioned that while imparting further thrust to infrastructure in the country it was important to address issues like inviolability of the contracts, factoring in of project risks, reasonableness of the revenue forecasts and upfront clearances before the start of projects.

Director IIMK, Prof. Debashis Chatterjee expressed happiness over the successful completion of the programme and thanked the Hon’ble Minister MoRTH for leading the much needed national debate on infrastructure development, from the front. He added “Academic, Government and Industrial collaborations such as this will play a pivotal role in knowledge and human capital creation needed for India to achieve its Vision 2047, that of a leading economy of the world. IIM Kozhikode and its leading thought leaders will continue to contribute to enriching the ideas that will shape the India of tomorrow.”

Highlights from the programme:

Mridul Saggar, former RBI Executive Director and Monetary Policy Committee member, and now with IIM Kozhikode, added that India has made rapid progress in the infrastructure sector and has now the 2nd largest road network in the world. He however, expressed concern at the viability of power projects. In his view, while NPAs have come down in recent years, asset quality remains a worry as the tariff revisions from State Electricity Regulatory Commissions (SERC) have been miniscule and the freebies culture has staged a comeback. He also raised the issue of large infrastructure debt of NHAI and Metro rails that can come to haunt in future if not managed well.
Rajendra Kumar, Member (Finance) NHAI, however, assured that total debt of Rs3.42 lakh crs was backed by assets and while debt servicing and redemptions together can balloon to Rs 62,000 crore by 2028-29, it is projected to fall sharply, thereafter, stabilizing to about Rs20,000 crs or less from 2032-33. NHAI had a strategy to tap more non-budgetary resources in future, including asset monetization, value capture financing and securitization.
Jagannarayan Padmanabhan, Senior Director & Global Head, CRISIL Ratings, said that ratings had improved in the corporate bond markets after the ILFS crisis and asset monetization has also begun in the port sector and has lot of potential in railways. Prof. Abhilash Nair of IIMK discussed the regulatory pricing of tariff and newer methods of project valuation that can be used. Shri Sumer Singh, IIFCL, said specialized institutions such as the IIFCL’ and NaBFID can work synergistically.
Suresh Goyal, MD & CEO of the NHAI InvIT, however, was of the view that corporate bond markets cannot become a major source of financing infrastructure financing and added that banks were also turning averse to taking risks in the infrastructure space, as reflected in low debt equity ratios in recent projects. Potentially, InvITs could grow in size to enable asset recycling and scope for asset monetization was quite large. He added that the quality of DPRs and the quality of consultants preparing them were extremely important.
Shri Partha Sarthi Reddy, Niti Aayog detailed the government plans to make the asset monetization program a success and said that it was time to shift the from the overreliance on HAM and VGF by reviving the BOT tendering models in the road sector.
Kumar Vinay Pratap, senior government official and Joint Secretary, Infrastructure, pointed out that India scored poorly on enforcing contracts in the Ease of Doing Business Index and the competitive bidding model had become a farce as businesses seek changes in terms of contracts after the project is awarded. Mr. P. Balaji, well-known telecom industry expert from Vodafone-Idea pitched for more competition and higher tariffs in the sector.
Mahesh Paranajpe, CEO, Tata Power Solar, pointed out that at times it becomes necessary for private sector to seek changes in the contract after it was awarded, especially when unforeseen events and circumstances beyond its control, including undue delays are alterations in plans by various layers of government. He highlighted the energy transition being planned in India that has already seen early success with average solar tariffs dropping to below Rs2.5/kWh in India. He pointed out that global supply chains in renewable powers can be rebuilt if the Indian government supports investments in polysilicon, cells and modules.