NIP Task Force stresses on sources of finance, project quality

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New Delhi, April 30 (IANS) The report of the Task Force on the National Infrastructure Pipeline (NIP) recommends diversifying financing sources, along with strengthening the existing means.

The final report for FY 2019-25 submitted to Finance Minister Nirmala Sitharaman on Wednesday also suggests monitoring of project execution and enhancing execution capacity of private sector participants.

It said that necessary steps or initiatives need to be undertaken in order to solve the challenge of stressed assets faced by banks and infra-NBFCs besides liquidity crunch faced by NBFCs, by encouraging usage of innovative mechanisms such as loan securitisation, InvITs, etc and increased participation of Infrastructure debt funds (IDFs), DFIs, among others.

The report noted that the deepening IDF markets and developing the asset-backed securitisation market for infrastructure could significantly relieve banks of current exposure in commissioned projects and enable them to direct more capital for greenfield projects.

“Taking note of the scarcity of long-term capital for infrastructure, the Task Force recommends regulatory revamp to enable significant participation of FPIs and FDI in IDFs, DFIs and securitisation markets in consultation with the RBI and the Securities and Exchange Board of India (SEBI),” it said.

The report, which runs in three volumes, also said that it is critical to ensure appropriate pricing of infrastructure services, for the sponsors and investors of the infrastructure assets to recover both capital and operating costs and it is necessary to determine fair value of user charges to finance and grow infrastructure.

Therefore, user charges policy framework will provide more clarity to investors and in turn, improve their confidence, it said.

The Task Force recommends autonomous regulation of tariffs which, however, does not always translate into independent sectoral regulations, it said, adding that other regulatory options like regulation by contract with price regulation provisions mentioned in the contract itself as well as multi-sectoral regulators may be actively considered.

Multi-sectoral regulators (MSRs) may be suitable as the objectives of regulation across infrastructure sectors are the same.

“In order to attract foreign and private capital into infrastructure, it is critical to undertake the following policies and reforms,” it said.

The report prepared by the task force under Department of Economic Affairs of the Finance Ministry suggested an early setting up of a well-capitalised credit enhancement institution. It is also important that long-term resources from the pension and insurance sectors are channelised into the infrastructure bond market.

This may require the government to work with the IRDA and the PFRDA to re-examine existing investment guidelines, it added.

Further, growing the pool of pension and insurance assets through sector reforms is a pressing requirement, including potential FDI reforms.

“Building up capacity of banking and financial institutions, including IIFCL and SBI, to provide long-term infrastructure finance is critical for growth of the sector,” it said.

The task force also recommends strengthening the municipal bond market in India and revitalising asset monetisation in the infrastructure sector.

Emphasising on efficiency of the project implementation, it has suggested to set up a monitoring and evaluation tool shall be used to help all stakeholders monitor the implementation and actual progress in comparison to the initial estimates of the NIP for each of the infra sub-sectors.

While basic monitoring will vest with the ministry and project agency, there is need for higher level of monitoring on reforms to be undertaken and to deal with issues of stalled project, it said.

For enabling robust private sector participation in the infrastructure sector, the report said that it is critical to have a deep pool of experienced developers with required competence and execution capacity.

Observing that at present, in most of the infrastructure sectors in India, only a handful of strong private sector participants are available, reducing the pace of infrastructure buildout through PPP modes, it has suggested to have an effective enabling environment and capacity development of the private sector and the public sector as well, to alleviate the lack of capacity for scheduled delivery of projects and development of a pool of private developers.

–IANS

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