The outlook is positive for the infrastructure development of the country.

Davinder Sandhu

Co- Founder & Chairman, Primus Partners

How do you look at the overall infrastructure development happening in the country?

India is the most populous country globally and is enormous in size. At the same time, it has miles to go to achieve better income status. Therefore, infrastructure is a key necessity. We need both physical and social infrastructure, including roads, rail, ports, airports, logistics, multimodal connectivity, data centres, etc., as nothing can happen without a well-developed infrastructure network. Currently, at the G20 meetings, India is focusing on driving the emerging market perspective on infrastructure for economic development. India has a sharp focus on renewable energy and the sustainability goals, which includes achieving Net Zero by 2070. This scenario has some created challenges and tremendous opportunities for the infrastructure sector in the country.

What are the key challenges faced, especially in road projects and what is the way forward?

In the last three to four years, during which two major black swan events occurred in the form of COVID-19 and the Russia-Ukraine war, the entire infrastructure sector has been impacted. The GDP growth rates have fluctuated, and governments have focused more on social protection programs to sustain the economy. There have been other unpredictable factors like the rise in commodity prices of steel, cement, and other materials. The government and private sectors are looking ahead, as things are improving. In the case of the Bharatmala programs, the government has committed to awarding projects by 2024. Also, the government has allocated more funds for these projects in the budget.

A major challenge I want to highlight is the quality of our DPRs (Detailed Project Reports). I feel that the DPRs are unnecessarily optimistic amid risks, and there is a need to include a risk analysis and stress testing of the model upfront.

How do you look at the future of PPP projects in the current scenario?

The policy related to Public-Private-Partnership (PPP) and other broad infrastructure programs is never a destination but a journey because infrastructure assets are multi-decade entities. They can be affected by social, technical, financial, and all kinds of other changes that keep happening. In fact, India ran one of the largest PPP programs a few years ago, which was very successful but ran into a bunch of NPAs. The government came out with the Hybrid Annuity Model (HAM) over PPP, where VGF was given to support infrastructure projects that are economically viable but yet miss the mark of financial viability. With the rising cost of capital, even that has come under stress. There are more projects on EPC with maintenance liability, which is a good variation of the BOT and HAM models.

In times of tightening monetary policy, there may be more HAM and EPC. Previously, the issue with EPC was that the developer completed a project and then left, and long-term maintenance suffered. However, the government is now encouraging EPC adoption, but with an annuity that will have to be paid for maintenance over the lifecycle of the project. So, if we look at the cycles, these are good journeys to take. According to the fluctuations in capital costs, one can adopt standard PPP, EPC, and HAM models. And hopefully, soon, one can go back to more private sector financing. We can't stop building infrastructure, so we must adapt to suitable models from time to time.

How do you look at the overall execution scenario of Bharatmala projects going forward?

The Bharatmala project was a classic case that got stalled due to the COVID-19 pandemic. The supply chain was affected, and construction workers weren't available. The most important thing in the case of Bharatmala is the implementation of the project in the next 3-4 years and whether we will be able to recover the time and come back to the target. The government has a clear commitment to the capex for the project. According to the NHAI Chairperson, all Bharatmala projects will be awarded within 2024. Now the ball is in the court of the developers and contractors to come forward.

How will the increased budget allocation for infrastructure help the sector come on fast track in the coming years?

More than the financial numbers, the Union Budget is a statement of the government's policy and its intent. The government is fully committed to driving infrastructure development in the country. I think the government's intent is clear on both funding the infrastructure projects and facilitating them with policy initiatives. Now the developers need to ensure that they have adequate capital assets, capacity, and skills to take on this challenge. I am quite optimistic, seeing the plan for the next 3-4 years.

What is your vision on India's logistics sector revival?

One good thing that happened during COVID was the focus on the logistics sector, and now there is a National Logistics Policy in place. It is a well-articulated and developed policy. There is an empowered group of secretaries that looks at all the projects beyond a capex of Rs 500 crore that are part of the National Infrastructure Pipeline. The logistics policy needs to be flexible enough to adapt to the changes happening around us, and secondly, there should be a very robust implementation and monitoring process. My understanding of the Logistics Directorate of the Government of India is that it is proactive in its approach. There is a need to strengthen this approach further. While implementing the logistics policy, there should be a rigorous monitoring system to ensure that it is going in the right direction.

What is your outlook on the infrastructure sector in India?

As a very large country with ambitious development programs on the agenda, there is a positive outlook for the infrastructure sector of the country. There will be demand as infrastructure projects need to be executed and delivered within the stipulated time frame. As far as supply is concerned, the government and public authorities are very proactive and are making sure that enough funding and capital are available to build the projects. There is policy help, including GatiShakti and faster and nimble modifications to PPP policy. The private sector in India is very capable, as they are some of the finest developers and builders in the world. There is a capacity to execute projects, and the government is making policy changes, and I am quite optimistic about the demand-supply scenario in the infrastructure sector.

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