In 2022, the major dampener was the road & highway sector - an important component of the PM Gati Shakti Programme. Only 4,766 kms of the targeted 12,000 km of highways for FY23 were built during April-November 2022 period, marking a decline of nearly 7% from the 5,118 km in the same period last year.
With this slow pace of highway development, NHAI faces an uphill task of constructing more than 50 kms of roads a day during the remainder months of FY23. The road transport and highway sector has a maximum number of delayed projects at 358 out of a total number of 769 delayed projects, leading to cost escalation. That road construction has gone into a slow lane, is also reflected by the bid premium for majority of the projects awarded in FY22, which fell to a mere 3-5% against the 10-20% road tenders over the previous 5 years.
MoRTH has been entrusted with a task to monitor and execute 235 critical road infrastructure projects as a part of Centre’s Gati Shakti initiative.
Another downside was that the National Investment & Infrastructure Fund (NIIF) launched in 2015 to create a capital raising structure for mobilising billions of dollars for the nation’s infrastructure, did not perform as per the expectations. There were reported differences between NIIF and the Government over their approach to investments.
However, what was positive about 2022 was that the Government took on the challenges, and quickly got into corrective mode. As part of the initiative to fast track the Gati Shakti Programme, 235 critical road infrastructure projects have been shortlisted for immediate monitoring and execution by the Ministry of Road Transport & Highways. For fast tracking road projects, implementing agencies like NHAI have been asked to create a month-wise action plan for awarding projects with a focus on maximising awards by March 2023.
To give a boost to the highway sector, the government is already working on the rating of road contractors to weed out errant contractors. The rating will take into account the financial and contract execution performance of the contractors over the last 5 years.
The Centre is likely to issue green bonds to mobilise resources for creating green infrastructure and has chalked out plans to launch around 10 road and highway InvITs.
On the Sagarmala front also, the Government has initiated corrective measures. Considering the slower pace of Rs 2.6 trillion port modernisation programme and Rs 1.36 trillion port connectivity programme, the Government went for scaling up of the programme; as a part of which, 735 new projects were added, taking the total number of projects to 1,537 (up from 802) with a total worth of Rs 6.5 lakh crore. The Government is adding 168 other projects for development, costing Rs 50,000 crore with a focus on PPP. As many as 29 projects worth Rs 45,000 crore have been successfully implemented under the PPP model and an additional 32 PPP projects worth Rs 51,000 crore are currently being implemented.
For ports, a master plan is in the works to ramp up four-fold their cargo handling capacity to 10,000 million tons per annum (mtpa), as part of Vision 2047. Currently, the total operational port capacity is 2,60,499 mtps. The plan will entail revival of shutdown ports, introducing cargo handling at passenger only ports, and bringing in the private sector to improve efficiencies.
The government is focusing on ‘Missing Link Projects’ where cost is low but the multiplier effect is high. The idea is to provide last-mile connectivity. Particularly ministries of roads and railways are giving top priority to it. For 2023, the Railways has set a target to construct 16-17 km of tracks a day against the current rate of 12 km a day. The Railways is also working on a plan to develop 100 Gati Shakti cargo terminals between 2022 and 2025. As many as 22 terminals have already been commissioned, while 125 applications for development of such terminals have been received, and 79 in-principle approvals have been granted.
In a major initiative, the target for number of airports, heliports, water aerodromes to be built, including those under ‘Udaan’ scheme is being raised to 220 by FY25, up from 140 in FY 22. The gas pipeline network is being extended from 20,000 km to 34,500 km by FY25. A roadmap for Rs 2.44 lakh crore power transmission lines has been prepared; under this, a 8,120 km long high voltage corridor will be readied and 42,000 kms long transmission lines will be laid.
To boost multimodal connectivity to cut down logistics costs and to bridge India’s infrastructure deficit, the Centre is working on an ambitious plan to create a vast pool of trained manpower for Gati Shakti. For this purpose more than 100 universities across 32 states have been identified to offer courses on Gati Shakti.
In order to boost multimodal connectivity and bridge India’s infrastructure deficit, the govt is working on an ambitious plan to create a vast pool of trained manpower for Gati Shakti.
What is significant is that the Modi government that has made development expenditure since 2014 (including infrastructure creation), has lined up initiatives to give a huge funding boost to infrastructure development. The Centre has asked states to give details of projects ready to be funded under Rs. one trillion Special Capex Loan to States. The 80% of the 50-year soft loan to states would be released solely on the basis of the viability of the projects. The Government wants to invest the entire loan funds in asset-creation projects in the current financial year and is ready to spend Rs 31,000 crore to beef up border infrastructure by building 3,508 km of roads and over 100 bridges.
The Centre plans to tap capital markets to fund road projects through investments from small retail investors by offering 8% assured returns. On the anvil is a surety bond cover for infrastructure projects to boost liquidity. It will be an alternative to bank guarantee, helping contractors by freeing up their working capital stuck in bank guarantees. Insurance companies will be able to provide surety bonds on behalf of contractors to entities such as NHAI, which are bidding for projects.
The Government is also likely to issue green bonds in Q4 FY23. The floating of sovereign green bonds is meant to mobilise resources for creating green infrastructure. The Road Transport & Highway Ministry has chalked out plans to launch around 10 road and highway InvITs to bring public money into infrastructure development. The money will be raised from small retail investors with returns backed by sovereign guarantees. So far, all road sector InvITs have been private trusts. NHAI has a project bank of 20,000 km of completed roads and will be offering projects worth Rs 40,000 crore in the next two financial years. In another private funding initiative, Kotak Investment Advisors Limited (KIAL) has raised Rs 6,000 crore infra fund for investing in operating infrastructure projects.
What is equally encouraging is that banks are warming up to fund medium to large infrastructure projects. Bank lending to infrastructure rose 11,1% YoY in July 2022. Banks are evaluating loan proposals of Rs 11,000 crore with regard to two mega infra projects: Ganga Expressway in Uttar Pradesh and Versova-Bandra Sea Link in Mumbai. The Government has come up with a new entity - The National Bank for Financing Infrastructure and Development (NaBFID) for infrastructure financing. Plans are also afoot to establish a new credit enhancement NBFC to provide guarantees to improve the credit risk profile of infrastructure companies, facilitating them to secure funding at more favourable terms. NBFC will act as guarantor for lower-rated bonds, making it easier for small and medium sized entities to obtain funding at attractive interest rates for viable business operations.
In view of the upcoming general elections in 2024, the 2023 budget will be a big booster for infrastructure development. The allocations for road transport and highway ministry are set to touch Rs 2.5 trillion against Rs 2 trillion set apart in the 2022 budget. The railways ministry has sought gross budgetary support of Rs 2 trillion (the highest ever) and up more than a third from the current outlay. This will improve the country’s overall economy and businesses, in turn, boosting employment. The Railways is reworking its PPP model for assorted projects to make it more attractive for investors and bridge the viability gap perceived by a section of investors. The new PPP model will be on the lines of a successful hybrid model in the highway sector.
Amidst all these efforts to boost infrastructure development, the Central Government has not lost sight of the complicated global economic scenario and is preparing to meet any unforeseen challenges. The Finance Ministry’s latest Economic Review Report focuses on the Government’s continued commitment to macro-economic stability to underpin both economic performance and investors’ interest in India. To end on a positive note - the road to infrastructure development looks promising.