We need to have a right mix between public and private sector investments to achieve the desired growth.

- PR Jaishankar

Managing Director, IIFCL

The government has set an ambitious target of becoming a USD 5 trillion economy by 2025. And to achieve the goal, the government has laid emphasis on giving a boost to the infrastructure sector. How do you assess the opportunities?

I think that the USD 5 trillion target is an ambitious milestone and we will definitely get to that with the right policies and reforms. There is no doubt that India has to grow and if it has to, then the infrastructure sector has to take the front seat. Already, there has been a keen interest by the Government to put in pace reformatory measures. IIFCL, too is geared to take support the government in meeting its GDP targets through the development of Infrastructure sector in India.

If you see some of the recent reports, India needs around USD 8 trillion worth of investments greenfield assets in 5 years to become USD 5 trillion economy. This calls for a renewed vigour on all fronts, domestic and foreign, to contribute meaningfully in the sector.

I see a great potential as far as the overall growth of India is concerned. The USD 5 trillion is only a milestone, and we could even surpass that with the enormous potential that the Indian economy holds.

Such ambitious projects and targets would need large scale investments. Your take on the investment scenario?

Yes, the targets are ambitious. How and when it will be achieved, that depends on how fast we can be reformative. There are many areas of reforms that need to be ushered in a big way in the Indian infrastructure sector.

If you look at infrastructure as a sector, it is quite nascent. We have just crossed the 2-decade mark from when we first started developing infrastructure at a phenomenal pace in early 2000s. For many decades, it was only the government investments, which were supporting the growth. Since 2000, we saw the need for a double digit growth and therefore we saw the private investments pouring in through PPP projects.

In the course of this period, there are lot of learnings that we had from PPP model. There had been areas where we needed to strengthen our set up to usher in and get the confidence of the private investors, and we have been moderately successful in doing so till date. In the recent past, the public-private-partnership ventures are not much forthcoming in the BOT or BOOT models. This is because the private sector is not taking much interest in making large investments. Therefore, to support the growth, the government has taken onus on itself.

To ensure that the infrastructure growth story continues along with the private sector participation, the government introduced the HAM model. This was only to reassure confidence of stakeholders that the infrastructure growth will continue and it will play an important role in the growth of the economy. Over the last 1 year, we have seen the private sector regaining confidence in India's growth story.

The setting up of National Infrastructure Pipeline (NIP), which promotes greenfield investments and the National Monetisation Pipeline (NMP), which actually helps to release the capital from such investments and ensure that the proceeds get into the infrastructure sectors' financial requirement, are intended to give a boost to private sector participation. That is a sound strategy and going forward, it will play a larger role. Apart from this, we are seeing a lot of measures being taken by the government to supplement this growth story.

At the same time, we need to look from the perspective of new financing architecture. So far, domestic banks have been the largest and most significant financiers in the infrastructure sector. Though not an appropriate one, but they have responded to ensuring delivery of finance to support the infra growth. Out of the over 9200 projects undertaken in India so far, over 40% are already completed. In the process, there have been several learnings, many challenges are being addressed aptly, several others are still work in progress. The earlier infrastructure projects used to be smaller and less complicated in terms of technology and the quantum of funds. Today, we are seeing mega projects. Therefore, kind of expectations is also much more and to live up to the expectation is a challenge.

What measures need to be taken to bring back the confidence of the private sector?

Traditionally, public sector banks were the main financiers of infrastructure sector. Today, in view of the changed sizes and complexities, we need to have the right proportion of both public and private sector for investments in projects. Apart from this, we need foreign investments. I would prefer FDI coming in directly as equity into the projects rather than Foreign Institutional Investments. A right mix of domestic and foreign investments need to be deployed in infra projects, considering the forex situation and the associated inflationary aspects.

Infrastructure projects are very long term projects, and so they can be generational in the sense they can pass on from one generation to another and even see transition of one government to another in the process. So I think we need to have a confidence building of the investors to look at the long-term returns from an infrastructure project, be it domestic or foreign. Such confidence building means we need to have a very good legal and regulatory framework/ platform in place. We have seen infrastructure laws in various countries like Australia, Canada and many other countries. I think it is time for us to have a law which can protect the stakeholders- be it developers, lenders, regulators and the government -from any uncertainty that could arise out of the projects. So, I think, we need to address the issues in the form of a law which encompasses various protection mechanisms and which can actually take care of the interest of all the stakeholders so the public at large can be benefited.. We at IIFCL have propagated this idea to various stakeholders.

Major projects have been funded through long terms loans by multilateral agencies like World Bank, ADB, JICA, etc. Do you see this as a healthy funding option or do you feel there is a need to channelise FDI in equity besides private sector investments?

I believe that more than Foreign Institutional Investments, FDI will play a much larger and meaningful role for developing our economy, ensuring employment growth and strengthening the overall fundamentals of the economy. So we need to look at it from that angle. Other than that, we need to see that the greenfield investment in India are still regarded as very risky by the private sector. Therefore, it is necessary that the private sector is given the necessary confidence to ensure and enable investments in greenfield.

As far as financial assistance for greenfield projects is concerned, perhaps PSBs and IIFCL are the only institutions which can take on such risks because of the track record and the kind of experience that has been built in and the capacities that we have.

FIIs and foreign debt are skeptical about getting into greenfield investments, both in debt and equity. We need to create an environment for them to enter. Till then, banks and financial institutions like ours, will have to play a major role in financing. In the new architecture that we envisage,  these institutions will have to lend as per their liability profiles. For eg. Banks which are more apt to lend, could take up the construction risk of 3-5 years and then pass on the asset to other set of institutions. This cycle should continue as a relay race where the baton of infrastructure assets get passed from one set of institution to another long-term lending institution or even the bond market. Bond market in India is still in its nascent stage, but has a huge potential and can play a role in supporting infrastructure projects once completed. Even FIIs will be enthused to invest. So we need to have a right mix of investments in these type of assets. We have to look at financing of single project in different phases of the life cycle.

In the Indian infrastructure scenario, we have very few developers who can take in large projects and most of their exposure are hitting their headrooms. However, now we have new instruments like InvITs, IDF and REITs. So we need to look at these instruments to release equities from project infrastructure companies.

Do you feel banks have an appetite to fund large projects especially when many infra projects have become stressed and that banks are having large NPAs on their balance sheets?

Stress in the infrastructure sector is due to multiple factors. Banks financing is not the right instrument to fund long term infra projects. We need to see financial structures like those in Channel Tunnel from London to Paris having a 99 years concession and funded by 203 banks. This is a classice case where one set of banks passed on the asset to another set of banks so the amortization period of the project increases and enhances the project viability and helps reduce user charges and create a multiplier effect in the economy. Similarly, we need to look at structuring the project finance to suit not only the project inflow revenues, but also that such revenue inflows take care of service requirements.

Severely impacted by the risks and uncertainities associated with large projects, the private sector has been shying from making large scale investments. Do you think the onus of making investments in greenfield projects would lie on the Government? Also, can you give us a sense on the revival of the BOT model in the backdrop of the initiatives being undertaken to boost private sector participation?

The period after 2013 saw a gradual decline in the interest of private sector in BOT models, owing to weak regulatory and institutional frameworks, delay in issue of clearances by authorities, long drawn out dispute resolution mechanism, lack of flexibility in contractual arrangements. This paved the way for introduction of new models such as Toll-Operate-Transfer (TOT) and the Hybrid-Annuity-Model (HAM) in 2016 and reinstatement of the traditional EPC mode.

In case of greenfield projects, while we see a significant leadership of the government to commission such projects, but the enormity and the kind of requirements that we have, unless the private sector takes a very strong position and plays a meaningful role to execute such projects, we will not be able to the realise the best of the potential.

To this extent, Government has been taking various steps to lure private investment into the sector. Efforts are being undertaken to improve upon concession agreements to ensure more equitable distribution of risks between private and public sectors. Going forward, we would be seeing more such progressive concession contracts coming in, aimed at providing a boost to private sector investments.

Can you share the roadmap for IIFCL in the current investment scenario?

IIFCL has been in the financial domain for the last 15 years and we have actually played the role of the last mile financier for infrastructure projects, particularly PPP projects. So far, as a consortium lender, we have supported the development of 28,500 kms of road development (21% of National Highway capacity), 65 GW of energy addition (17% of India’s installed capacity), 800 MT of port capacity development (52% of India’s Major Port capacity), development of Major International Airports-Delhi, Mumbai, Hyderabad, a number of urban infra projects. We are one of the largest lender to HAM projects in road sector. 

We have been complementing and derisking the banks and playing a key role to build capacities in the infrastructure sector. Today, we are looking at scaling up our activities and capacities. We are also putting in place mechanisms such as online monitoring of projects and have a closer coordination on the progress of projects and ensure that disbursements are done on utilisation-based mode. We are also looking at ensuring capacities in the research front. We are trying to put in place research wing to actually monitor and update the trends in the infrastructure industry in India.

Our subsidiaries are also quite active. Our subsidiary in London has a USD 5 billion credit to finance imports related to infrastructure projects in India. We have a subsidiary IIFCL Projects, which is mainly into project transaction advisory services and financial syndication services for infrastructure projects. We also have infrastructure debt fund for mobilising resources for the infrastructure sector. So from all fronts we are trying to play a role to stimulate and take the scale of activities to the next level.

Last year has been satisfactory in terms of sanctions are concerned. We had about Rs 21000 crore worth of projects sanctioned and disbursements of over Rs 9,000 crore. On a consolidated basis, disbursements stood at around Rs 11,000 crore. So this was the highest ever sanctions and disbursements so far since the evolution of the company. We have so far, on a consolidated basis, sanctioned around Rs 2 lakh crore and disbursed around Rs 1 lakh crore for the infrastructure sector.

Going forward, on a Y-o-Y basis, we would like to keep a very healthy growth trend and we would like to grow both the sanctions as well as the disbursements. And we are looking to actually disburse about Rs 15000 crore this year. We plan to go for resource raising this year, as and when the requirement arises, given that the domestic environment is more conducive at the moment.

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