Benefits of granting infrastructure projects

Infrastructure status will ensure easier access to institutional credit and help in reducing developers’ cost of borrowing for affordable projects. Lending at easier terms with enhanced limits,
Access to longer duration funds,
Tap the external commercial borrowing route
Refinance existing loans at competitive rate
Access to longer tenor funds from insurance companies and pension funds.

Housing sector is granted with infrastructure status.
Logistics sector granted infrastructure status by Finance Ministry	Nov 2017
Sports Sector	Sept 2016

Proposal to grant infrastructure status to Mining industry but not yet granted

Infrastructure sub sectors

OR Harmonized list of Infrastructure sub sectors

Currently, five broad categories include -

Transport and Logistics,
Energy,
Communication
Water and Sanitation,
Social and Commercial Infrastructure

Harmonized list of Infrastructure sub-sectors is meant to facilitate a coordinated approach, among agencies providing support to infrastructure, and, thus spur infrastructure development in a more optimal manner.
Inclusion of new sub-sectors proposed by a particular agency is done only after assessing the applicability of six characteristics of infrastructure (namely natural monopoly, high sunk costs and asset specificity, non-tradability of output, non rivalness in consumption, possibility of price exclusion, and presence of externalities) and one or more of the three parameters (namely its importance to the scheme of economic development, its ability to contribute to human capital and the specific circumstances under which it has developed in India)

National Infrastructure Pipeline NIP

Projects worth investment of around 111 lakh crore to be implemented over the next 5 years (2019-25)
Centre - 39%, States - 39% and Private 22%
NIP includes both economic and social infrastructure projects and both green field and brown field projects

Economic infra includes: Roads, energy, railways, shipping, steel etc.
Social infra includes: Education, health, sports etc.
[Roads > Urban and Housing > Railways > conventional power > Renewable energy > Irrigation ] these together accounts for nearly 80% of NIP

Energy (24%), Roads (19%), Urban (16%), and Railways (13%)

About 42% of identified projects are already under implementation, 19% are under development, 30% are at conceptual stage

Investment Models

Growth Led Investment

Growth gives rise to income which leads to further investment that furthers the growth

Autonomous Investment

Govt spending/investing

Directed Investment

Public sector investment

Competitive Investment

Private Sector investment

Leveraged Investment

Public Private Partnership PPP model which is unique in India
Most common form of Investment Model in India
Leveraging the strength of Govt - National interest and faster clearances
Leveraging the strength of Private - efficiency and execution, business
4 broad forms of PPP Model

BOT Build Operate Transfer

Concessionaire Builds, Operates and finally transfers to Govt after specific period. Has to acquire land himself
Concessionaire

Build on his own resources. Raises funding on his own
Operates by levying tolls, user charges, utility charges [Govt decides tolls and user charges value before project starts]
Transfer to Govt after operating for not more than 33 years and the period is mentioned in Model Concessionaire Agreement. Generally it will be after the period where Concessionaire recovers investment cost and profits.

Government

Allows Concessionaire to collect tolls and user charges from public

Examples: Most of the National Highway Projects

OMT Operation and Maintenance

Agreement with private for renovation and expansion of existing projects
Not more than 10 years now in India

DBFOT Design Build Finance Operate Transfer

Concessionaires responsibility to design, build, finance, operate and transfer to Govt
First airport developed under DBFOT is Shamshabad Airport
Major challenge is Land Acquisition

EPC Engineering Procurement and Construction

Govt provides Land and money

Induced Investment

FDI, FII,

Sector Specific Investment

Integrated Manufacturing Clusters IMC

Integrated Logistics
Dedicated freight corridors

National Investment and Manufacturing Zones (NIMZ)

Nodal agency is Department for Promotion of Industry and Internal Trade DPIIT, Ministry of Commerce & Industry
NIMZs are integrated industrial townships conceptualized under National Manufacturing Policy 2011
Features

World-class manufacturing activities
State of the art infrastructure
Land use on the basis of zoning
Clean and energy efficient technology
Necessary social infrastructure
Skill development facilities
land for these zones will preferably be waste infertile land not suitable for cultivation,

Central govt

Provides external physical infrastructure linkages to the NIMZs including rail, road, ports, airports and telecom, in a time-bound manner
Viability gap funding wherever required.
DPIIT, Ministry of Commerce & Industry is the nodal agency

State govt

Declare NIMZ as industrial township under Article 243Q(1)(c) of the Constitution
Constitute a Special Purpose Vehicle (SPV) to discharge the functions specified in the policy.
Environmental Impact Assessment {NOTE: For SEZ, EIA is to be done by Project developer}

As of now, Government of India has granted ‘in-principle’ approval to the < style='font-weight:bold;font-family:"Nirmala UI";font-size:11.0pt'>sixteen NIMZs

Special Economic Zones SEZ

Ministry of Commerce
Also see Export Oriented Units EOUs but with some variations
To encourage exports of goods and services
Exclusive Zone
24*7*365
Land, labour laws flexible. No unions allowed
Acts like a deemed foreign territory w.r.t economic matters
SEZ imports can be anywhere from the world and DTA Domestic Territory Area and all such imports are duty free
Any Good/Service coming out of SEZ has to be exported
SEZ concept first introduced in China because of which it became largest exporter in the world
India’s SEZ Policy was implemented from 1 April, 2000
India- SEZ Act of 2005 supported by SEZ Rules 2006

Objectives of SEZ Act are

Generation of additional economic activity
Promotion of exports of goods and services
Promotion of investment both from domestic and foreign sources (attract FDI)
Creation of employment opportunities
Development of infrastructure

Indian SEZ is smaller than that of China since China has large continuous barren lands
Any private/public/joint sector or state government or its agencies or a foreign agency can set up an SEZ

Baba Kalyani Committee report

Constituted by Min of Commerce to study existing SEZ policy
Recommendations of the committee

Reincarnation of SEZs as Employment and Economic Enclaves (3Es)
Infrastructure status to 3E projects to make cheaper finance available to them

NIMZ	SEZ
Under National Manufacturing Policy, 2011	Under SEZ Act, 2005
Minimum area 5000 hectare	Min 10-1000 hectare Max 5000 hectare
Income tax exemption to MSME	IT exemption 100% for first 5 years, 50% for next five years
Environment Impact assessment by State Govt	By project developer

Industrial Cluster Investment

Preserve traditional goods like handicrafts, silk, cotton, bangles with modern goods

Industrial Parks Investment

Dedicated areas for industrial activities

Swiss challenge model

When a bid is received for a public project, it is placed in public domain and invites the other to match or exceed the bid

Human Capital Investment

Investment on Skills and Education

Value Capture Financing

Seeks to enable States and city governments raise resources by tapping a share of increase in value of land and other properties like buildings resulting from public investments and policy initiatives, in the identified area of influence
VCF is constituted of four steps:

Value Creation- Creating new development opportunities.
Value Capture- Investment turned into monetary value.
Value Realisation- Sharing of gains through agreed instruments of VCF
Value Recycling- Resources thus collected are used for local development projects, thus looping the loop

Infrastructure Investment Trusts InvIT

mutual fund like institutions that enable investments into the infrastructure sector by pooling small sums of money from multitude of individual investors for directly investing in infrastructure
InvITs are set up as a trust and registered with SEBI.

SEBI allowed InVIT and REITs to raise debt securities
As per present regulations, InvIT investments are not open for small and retail investors.
The minimum application size for InvIT units is Rs 10 lakh.
The main investors could be foreign institutional investors, insurance and pension funds and domestic institutional investors (like mutual funds, banks) and also super-rich individuals.

The objective of InvIT is to facilitate investment into the infrastructure sector in India
Two types of InvITs have been allowed:

One, which invests in completed and revenue generation infrastructure projects
Other, which has the flexibility to invest in completed or under construction projects.

Infrastructure - Overview