State-owned infra financing cos may give Modi's 'Smart Cities' a miss

State-owned infra financing cos may give Modi's 'Smart Cities' a miss

Even as the government plans its push for massive public sector investment in its ambitious Smart Cities project, state-owned infrastructure financing companies such as Infrastructure Finance Company and Infrastructure Development Finance may rule themselves out of participating in the initiative, citing lack of projects guaranteeing returns.

"The projects to be undertaken under smart cities will not be with the intention of generating revenue. For example, a flyover built under the initiative will not attract toll fees. These projects will be for public welfare. IIFCL has to look at return on its investments for its shareholders. Hence, projects under smart cities may not be feasible for us," a senior IIFCL official said, speaking on condition of anonymity. This person confirmed that IIFCL may not participate in any of the smart cities project.

According to IIFCL's 2013-14 annual report, gross sanctions under direct lending for that year amounted to Rs 2,261 crore for 19 projects, while disbursements for projects amounted to Rs 5,484 crore. During that year, IIFCL sanctioned Rs 3,292 crore under the takeout finance Scheme.

Sources also said that the same may apply to other public sector infrastructure financing companies like IDFC and Power Finance Corp. As such, non-participation of these companies could create a financing drought for the Smart Cities initiative, especially at a time when PSU banks have large non-performing assets on their books, forcing the central government to consider NBFCs for funding some projects.

The government has approved funds of Rs 1 lakh crore over the next five years for 100 smart cities and a new urban renewal mission initiative. Of this, Rs 45,000 crore will be for the smart cities, and rest for urban renewal projects in other cities. As reported in Business Standard earlier, these amounts could increase, with the bulk of spending coming from the Centre, states, and PSUs.

The push for public investment in infrastructure to boost growth was first mooted by Chief Economic Advisor Arvind Subramanian in his mid-year economic analysis in December in the last financial year.

It seems imperative to consider the case for reviving public investment as one of the key engines of growth going forward, not to replace private investment, but to revive and complement it, he wrote in the report. The idea was taken forward in the 2014-15 Economic Survey and the 2015-16 Union Budget.

By delaying the fiscal consolidation road map by a financial year, and by targeting a fiscal deficit of 3.9% for 2015-16, instead of 3.6% according to the previous road map, Finance Minister Arun Jaitley freed up about Rs 70,000 crore for additional investment into key infrastructure sectors, primarily Railways.

The mid-year economic analysis and the economic survey have also accepted that the PPP model has been less than successful. As an example, out of 59 infrastructure projects started in 2013-14, totaling Rs 1.37 lakh crore, only 11 were through PPP. Out of the remaining 48, 20 were by central government entities, and the remaining by private entities.

Source: Business Standard

Smart Grid Bulletin July 2019

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