FM announces measures to infuse liquidity in infra sector

The Union government has provided another push to the infrastructure sector by announcing measures that could infuse liquidity in companies and lenders and has relaxed earnest money deposit (EMD) and performance security on government and public sector tenders. It will also put in ₹6,000 crore as equity in the National Investment and Infrastructure Fund (NIIF), which will be used to create a debt platform for infrastructure financing. FM Nirmala Sitharaman informed that this platform will help NIIF provide a debt of ₹1.1 trillion for infrastructure projects by 2025. In addition, ₹10,200 crore will be given as direct support for infrastructure creation. CARE Ratings said that the government spoke of spending ₹25,000 crore on capital expenses in the earlier stimulus, so the total spending on this head would be around ₹4.45 trillion. Another ₹3,000 crore has been announced for financing projects set up by Indian companies overseas. According to FM, performance security on contracts has been reduced to provide ease of doing business and relief to contractors whose funds would otherwise remain locked up. This will also extend to ongoing contracts and public sector enterprises. EMD for tenders will be replaced by bid security declaration. The relaxations in the General Financial Rules will be in force till December 31, 2021. According to Raghav Chandra, former chairman, National Highways Authority of India, more companies might not invest despite the liquidity infusion. Infrastructure is necessary and spending has to go up and it will also boost allied sectors, like cement, steel and labour. He cautioned that the quality of projects should not get compromised because of lower guarantees. The focus should be on reducing time lag in project awards, which could address the issue of guarantees. Shubham Jain, senior vice-president and group head at ICRA, informed that reduced performance bank guarantee and no EMD will lead to savings for the companies in terms of guarantees required.