Budget expectations: Roads & Infra sector

Much of the infrastructure financing in the country is currently supported by the banking sector.

January 21, 2022 6:26 IST | India Infoline News Service

“The ambitious National Infrastructure Pipeline (NIP) involves an outlay of around Rs. 20.3 lakh crore in the road sector over FY2020-FY2025. However, in the past, the budgetary allocations have not kept pace with these plans. Consequently, the sector’s dependence on debt funding remained elevated. The total debt for the NHAI has increased by more than three times to Rs. 3.38 lakh crore as on March 31, 2021 from Rs. 75,385 crore as on March 31, 2017. The borrowings are expected to surpass Rs. 4.5 lakh crore by FY2024 to fund the Bharatmala Pariyojana programme (subset of NIP). Although there has been some progress on the toll-operate-transfer (TOT) awards and other fund-raising initiatives (e.g. NHAI INVIT and securitisation of toll receipts), a significant step-up is required given the sizeable funding requirements of the ambitious programme.

Given the Government’s thrust on infrastructure spending to revive the economy, the FY2023 budgetary outlay remains crucial to complete the Government’s ambitious Bharatmala and allied programmes in a timely manner. As a result, the capital outlay is expected increase by 25%-30%, supported by an increase in the budgetary allocation to the sector to make up for the shortfall in the last three years and the slow progress on asset monetisation. Investors also expect a funding roadmap for the ambitious NIP and asset monetisation pipeline for NMP.
Much of the infrastructure financing in the country is currently supported by the banking sector.

The availability of long-term infrastructure financing continues to remain a challenge, given the twin problems faced by commercial banks: (a) asset-liability mismatch and (b) high share of stressed assets. Although a new DFI was announced in last year’s budget, it is yet to become operational fully. Further, the new DFI is expected to meet only 2-3% of overall NIP funding requirement. At the same time, there is a need to shift operational road assets towards capital markets by promoting investments in A category rated bonds. There is a need to deepen the bond markets for the infrastructure sector.”


“The infrastructure sector expects the Government to continue taking steps towards achieving a Rs. 111-trillion infrastructure investment as per the NIP, provide more clarity on the current status of the NIP, its financing avenues, and its capex phasing over the next few years. To meet the NIP funding, Gross Budgetary Support towards the infrastructure sector is expected to be increased by 15-20% with focus on roads, railways and urban infrastructure segments. Dedicated allocations for specified large infrastructure projects, such as high-speed rail (including bullet trains), Bharat Mala, Sagar Mala, Smart Cities, inland waterways development, etc, can help to expedite these projects. Further, the budgetary allocation towards NHAI is likely to be increased to Rs. 65,000-70,000 crore in FY2023 (from Rs. 57,350 crore in FY2022 BE), keeping in view the increased capital outlay on National Highway development.

The infrastructure sector is also looking at steps to improve long-term funding availability for the sector. To bridge the funding gap, a higher allocation towards the newly set-up DFI – NaBFID (which is expected to start lending to infrastructure project in FY2023) and the NIIF, along with initiatives towards strengthening the corporate bond market are anticipated. Permitting some reputed public-sector enterprises to raise long-term funds by way of Infrastructure Bonds or Tax-free Bonds, may also support funding availability for the infrastructure sector. To revive private sector interest in taking up new projects, measures towards further improvement in the regulatory environment, including the resolution of stuck claims, are expected.”

Source: ICRA

The views and opinions expressed are not of IIFL Securities, indiainfoline.com

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