20 Apr 2021
In his Independence Day speech of 2019, Prime Minister Narendra Modi announced the launch of the National Infrastructure Pipeline (NIP) — a comprehensive plan of infrastructure development. On December 31, 2020, the finance minister unveiled the detailed NIP Report setting out a capital expenditure plan of Rs 111 trillion for the next five years. In her latest Budget speech, the finance minister took an important step toward, filling in the gaps in a crucial component of the plan — namely, how to fund it.
To this end, she announced a National Monetisation Pipeline (NMP) to sell off, wholly or partially, current brownfield infrastructure assets owned by the state.
The NIP and the NMP are thus the two complementary pieces of the same puzzle, the infrastructure pipeline “jugalbandi” if you will — on how to take the next big steps towards a comprehensive infrastructure development plan, and how to fund such a plan.
The NIP came at a crucial time; announced a few months before the pandemic, it became even more relevant as a part of an overall plan for injecting fiscal stimulus to an economy massively hit by the Covid lockdown. The immediate emergency has passed, but the broader thrust, toward a large-scale economic revival led by coordinated and organised infrastructure projects, remains as crucial as ever.
In her speech, the finance minister pointed out that while the NIP was launched with around 6,835 projects, it has now expanded to 7,400 projects. Around 217 projects worth Rs 1.1 trillion have already been completed. The funding plan for the NIP will work on three tracks. Firstly, by creating development financial institutions focused specifically on infra finance. To this end, the finance minister announced the introduction of a Bill to set up a Development Finance Institution (DFI) capitalised to the extent of Rs 20,000 crore. “The ambition is to have a lending portfolio of at least Rs 5 lakh crore for this DFI in three years,” the finance minister said in her speech.
A second leg was the enhancement of capital expenditure in the Budget (a 34.5 per cent increase over budget estimates of the previous year), while the third leg of the plan involves asset monetisation, of which the NMP is the critical part.
What does the NMP cover? The finance minister talked about special purpose vehicles such as Infrastructure Investment Trusts (InvIT) set up by organisations like the National Highways Authority of India (NHAI) and Power Grid Corporation to hold road projects and transmission projects, respectively. The NHAI trust will hold about Rs 5,000 crore worth of road projects, while the Power Grid trust will hold about ₹7,000 crore worth of power transmission assets. It is in these trusts that domestic and international institutional investment will be invited.
To put that amount in context, it is worth remembering that just a month before the finance minister’s speech, Road Transport and Highways Minister Nitin Gadkari had stated that the NHAI was planning to raise Rs 1 trillion through the monetisation of highways using the toll-operate transfer mode over five years.
Monetisation of road projects and power transmission assets are just the tip of the iceberg. The finance minister also talked of the railways monetising parts of its dedicated freight corridor projects, and the monetisation of airport projects as well in Tier II and Tier III cities. Other sectors and projects include oil and gas pipelines of GAIL, IOCL and HPCL, sports stadiums, and warehouse assets held by organisations such as Central Warehousing Corporations.
News reports have indicated that rather than set annual targets, the government wants to set a target of monetisable assets up to 2024. Ministries have been asked to firm up lists of such assets in consultation with NITI Aayog with the reports indicating that a total of Rs 2 trillion of assets could be on sale. Moving beyond annual targets and road maps also allows more time to potential investors for due diligence.
The NIP, when it was first announced, was pragmatic about the necessity for governments at both the central and state level, as well as the private sector, to fund such large investments on their own. It’s interesting to note that the funding plan above seems much more optimistic about private sector capital coming in through the NMP route — a clear recognition of investors currently preferring operating brownfield assets over the more riskier greenfield ones.
Seen in a longer-term perspective, the decades long build-out of infra projects in sectors such as roads, which originated in the form of the Golden Quadrilateral and the NEWS (North East West South) corridor, are finally bearing fruit. And it’s not just highways — in sectors such as power, ports and airports, the government bit the bullet and made substantial investment decisions over the last two decades. The NMP, when it takes off, will bring such investments to their logical conclusion, by recycling the funds deployed. In the process, the NMP will enable a renewed thrust in infra investments, every bit as ambitious as the ones made years earlier.
The “jugalbandi” of these two pipelines — the NIP and NMP — should be music for the infrastructure sector, and the nation. One investing, the other resourcing.
The article by Vinayak Chatterjee, Chairman, CII Infrastructure Council and Chairman, Feedback Infrastructure Pvt Ltd., appeared in the March 2021 issue of CII Economy Matters. Click here to read the issue.