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Government Incentives for Infrastructure Development

India is emerging to become a global leader in investing in world-class infrastructure projects, in view of concrete plans set out in the 2021 Budget. With unwavering growth in the Indian stock market witnessed by indexes touching unprecedented highs, the Indian infrastructure sector is filled with signs of optimism as the country reels out from the effects of the pandemic. Current trends suggest a boost in infrastructure spending that shall also facilitate infusion of overseas capita for investments in other sectors and an availability of credit for infrastructure projects.

The government’s National Infrastructure Plan for 2019 to 2025 has already supported more than 9000 projects having a total project cost surpassing USD 1949 billion.[1] The National Infrastructure Pipeline is a live database of infrastructure projects and provides attractive investment opportunities in projects worth more than INR 100 crores in sectors including Transport, Logistics, Energy, Water and Sanitation, Communication, Social and Commercial Infrastructure.[2]

 

Apart from this, opportunities are available through the government’s ‘India Investment Grid’ (IIG) for investing in stressed assets to allow the purchase of viable stressed assets which have the potential for being turned around.[3] IIG also facilitates Corporate Social Responsibility opportunities for businesses to invest in infrastructure building in the education, healthcare sectors and for poverty alleviation as part of their CSR spending.[4]

These investment opportunities are coupled with a bold move towards introducing National Bank for Financing Infrastructure and Development Act, 2021. The long-overdue initiative establishes a government-owned Development Finance Institution (DFI) for extending long-term affordable debt financing to infrastructure projects. The DFI is set to receive initial funding from the government and is projected to have a lending capability of a minimum of INR 5 trillion by 2024-25. The appointment of the veteran banker, Mr. K V Kamath as the chairperson of the newly set up INR 20,000 crore DFI- National Bank for Financing Infrastructure and Development, falls in alignment with the developmental and financial objectives of DFI.

The INR 40, 000 crore National Investment and Infrastructure Fund (NIIF) anchored by the Government of India in 2015 is also gaining momentum through its funds namely, Master Fund, Fund of Funds and Strategic Opportunities Fund each with a designated purpose.

 

Impetus has been given to the domestic manufacturing ecosystem through the Atmanirbhar Bharat initiative, especially to Micro, Small and Medium Enterprises (MSMEs) aiming to facilitate local manufacturing. As a further boost to the initiative, the government intends to achieve a turnover of US$ 25 billion including export of US$ 5 billion in aerospace and defense goods and services by 2025[5]. An increase in the capital expenditure will augment the procurement of weapons, aircraft, warships, and other military hardware. Posing as a lucrative market for defense companies, India gives orders worth US$ 100 billion a year for defense procurement.[6] Therefore, the Finance Ministry has permitted Foreign Direct Investment (FDI) in the defense for sector up to 74 percent under the automatic route leading to access of modern technology, strategic partnerships between foreign manufactures and defense equipment manufacturers in India. It also promotes active utilization of the Technology of Funds scheme that supports MSMEs in catering to the requirements of technological development in the defense sector.  

 

With a capital infusion of INR 1,000 crores to Solar Energy Corporation of India, there is a likely surge in large-scale solar installations, grid-connected projects, solar plants, and solar parks along with a phased manufacturing plan for solar cells, solar panels, and domestic production of solar inverters and solar lanterns.

 

The Government of India has also earmarked areas including highways, railways, power grids, and airports to monetize public infrastructure for financing new public projects. Statutory authorities have already begun setting up infrastructure investment trusts (InvIT) which will hold the public infrastructure assets for national as well as international institutional investors. Another avenue under consideration for obtaining public investment into infrastructure projects is issuance of tax-efficient zero-coupon bonds by infrastructure debt funds.

 

Major tenders worth more than INR 20 billion are expected to be issued in the coming financial year for public-private partnership in the management and operations of ports.

 

The logistics sector serves national trade, international trade, MSMEs, and start-ups. The launch of INR 100 crore Gati Shakti National Master Plan for Multi-Modal Connectivity has heralded new possibilities. This digital platform will incorporate the infrastructure schemes of various Ministries and State Governments like Bharatmala, Sagarmala, inland waterways, dry/land ports, UDAN etc; Economic Zones like textile clusters, pharmaceutical clusters, defense corridors, electronic parks, industrial corridors, fishing clusters, Agri zones will be covered to improve connectivity and make Indian businesses more competitive[7]. The National Logistics Policy is expected to promote seamless movement of goods through a focus on digitization, process re-engineering, multi-modal transport, EXIM trade, etc.[8] It is designed to streamline rules and address supply-side constraints, leading to lower logistics costs, the boost of trade, enhancement of Logistics Performance Index and greater competitiveness for Indian products worldwide.

 

In the power sector, apart from an INR 3 trillion outlay planned over the coming five years for revamping the power distribution scheme by providing distribution companies with financial assistance for developing a smart-metering infrastructure, the government is also in the advanced stages of launching a National Hydrogen Mission which may provide an opportunity for corporations in the power sector to engage in the export of green hydrogen and green ammonia while also meeting the domestic demand.

 

These dynamic initiatives clubbed with the use of India’s IT capabilities by creating monitoring mechanisms such as a dashboard to track the progress of publicly monetized infrastructure projects have created attractive opportunities for infrastructure companies to mobilize their assets into the establishment of new development projects.

 

Fox Mandal’s Infrastructure, Project Finance, and Energy Teams deliver unmatched expert services in wide-ranging areas of public infrastructure, inclusive of but not limited to ; transaction assistance for infrastructure projects, services of review, compliance, submitting tender documents, structuring and reviewing concession agreements, incorporation of Special Purpose Vehicles (SPVs), procuring relevant licenses and approvals, regulatory clearance facilitation, dispute resolution, strategy planning, and infrastructure contract bidding management.

 

As a commendation for the services rendered by Fox Mandal, the Firm featured in 2021 Legal 500 Rankings for its Projects & Energy Practice vertical.  

 

References: 

[1] https://indiainvestmentgrid.gov.in/national-infrastructure-pipeline

[2] https://indiainvestmentgrid.gov.in/opportunities/nip-projects/transport and https://indiainvestmentgrid.gov.in/national-infrastructure-pipeline

[3] https://indiainvestmentgrid.gov.in/opportunities/stressed-assets/transport?subSector=112%2C37%2C110%2C108%2C109%2C107%2C106%2C111%2C113

[4] https://indiainvestmentgrid.gov.in/opportunities/csr-projects?sector=29%2C10&subSector=97%2C99%2C157%2C94%2C100%2C93%2C102%2C105%2C96%2C95%2C103%2C104%2C98%2C112%2C37%2C110%2C108%2C109%2C107%2C106%2C111%2C113

[5] https://www.investindia.gov.in/sector/defence-manufacturing

[6] https://www.business-standard.com/article/economy-policy/higher-fdi-in-defence-sector-to-attract-mncs-give-make-in-india-a-boost-120051900698_1.html

[7] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1763638

[8] https://www.thehindubusinessline.com/opinion/logistics-and-supply-chain-trends-for-2021/article36366467.ece

 

Image Credits: 

Photo by David Rodrigo on Unsplash

These dynamic initiatives clubbed with the use of India’s IT capabilities by creating monitoring mechanisms such as a dashboard to track the progress of publicly monetized infrastructure projects have created attractive opportunities for infrastructure companies to mobilize their assets into the establishment of new development projects.

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