China-led Asian Infrastructure Investment Bank (AIIB) expects the cost of infrastructure financing in India to increase over the next one year.
The bank, in its Asian Infrastructure Finance 2019 report released on Tuesday, said it sees slowing global economy, higher borrowing costs and geopolitical tensions leading to greater uncertainty among investors.
While the bank expects a marginal increase in the cost of infrastructure financing cost in India, it also noted that geopolitical shocks or commodity price fluctuations could intensify any increases in cost of financing even further.
Infrastructure financing scenario in India, similar to other countries in the region, has been dominated by public spending, while significant breakthrough in the mobilisation of private capital for infrastructure is yet to be seen, AIIB report noted.
It said the reliance on on government funding through EPC and annuity-based infrastructure financing models in India reflects the weak balance sheets of some domestic commercial banks.
At the same time, according to Rajat Misra, Investment Operations Manager at AIIB, India’s move towards using innovative PPP structures like hybrid annuity model and Toll-Operate-Transfer model in the road sector could lead to revival of private sector interest in infrastructure.
Transactions down
For eight countries studied by AIIB, which includes India, China, Bangladesh, Pakistan among others, the total value of infrastructure market transactions reaching financial closure fell in 2017 and would likely to have also registered a small decline in 2018, compared to 2016, the report said.
India’s infrastructure transaction activity, after reaching $72.7 billion in 2014, dropped to $48.9 billion in 2015 and to $40.4 billion in 2016.
While in 2017, it bounced back to $81.3 billion due to surge in transaction in oil and gas segment, other sectors continued to see decline. In the nine months of 2018 (till October), the total closed and ongoing transaction value reached $46.4 billion.