Historically, infrastructure projects in India have been funded on a mix of debt and equity. The current trends suggest so. Over the past 15 days, as many as three initial public offerings-IRB, HUDCO and PSP Projects - have hit Dalal Street, raising more than Rs 6,000 crore, a testimony to the fact that the bond market is gaining pace after the 2008 turmoil.
However, there is a catch. With infrastructure investment trusts (InvITs) coming into existence, Indian infra developers now have a third dimension to infrastructure funding. The recent indication of IPOs which IRB has issued worth Rs 4,600 crore, which was oversubscribed 8.57 times, suggests investors' trust in InvIT. What's more, following the footsteps of IRB, MEP Infrastructure will also be raising Rs 1,200-Rs 1,600 crore through InvIT. In a way, this instrument is sustainable because of the many safeguards built into these financial instruments. For instance, it is only for projects that have demonstrated commercial traction.
In a way, if InvITs are pitted against initial public offerings, they definitely have an upper hand. The former is good for the investor from the point of view of annuity income. Importantly, it is good for the developer as it allows developers to unlock capital, which in the case of IPOs is negative.
In a major boost to increase production capacity by 2030, the Union Cabinet, chaired by Prime Minister Narendra Modi, approved the much-awaited new National Steel Policy (NSP), which plans an investment of up to Rs 10 lakh crore. As for the struggling sector, the new announcement brings fresh potential to keep pace with the growing steel demands of India, curbing imports from countries like China and Japan.
The new mandate of NSP 2017 has some advantage, mainly on the procurement side. Here, all government tenders will give preference to domestically-manufactured iron & steel products - a step in the right direction which augurs well for local steel manufacturers, steel users and the steel trade in general.
As India mobilises to carry out the 2030-31 target of crude steel capacity of 300 MT and per capita consumption of 158 kg of finished steel, the policy encourages adequate capacity additions, cost-efficient production and assured acquisition of raw materials, facilitating foreign investments and enhancing domestic steel demand, all leading to healthy economic growth. However, 300 MT by 2030 seems to be a farfetched ambition, considering the capacity addition over the past decade of a mere 60 MT.
Arguably, these examples depict India's farsightedness in shedding age-old methods. But with the advent of Big Data, analytical tools and the Internet of Things (IoT) in solving civic issues and strengthening ULBs, there is a drastic need for a Constitutional amendment in rectifying Municipal Acts in the country, which in some of the cities dates back to the British Raj.
Look at these examples - Noida and GIFT City in Gujarat revoked Article 243 (Q) of the Constitution of India. With the revoking of Article 243 (Q), these two cities managed to bring every single decision related to business activities, utility permissions and infrastructure projects under one roof. The temporary tenure of the city administration is keeping the commitment to building cities tentative too. In 1800 only 3% of the population stayed in urban areas. So an act dating back to 1888 needs a new avatar even though we have had the 74th amendment.
InvITs and Steel policy have been two fixes for the infrastructure sector while the municipal act can fix the basic flaw in the city governance structure.