The Centre has intensified its efforts to kickstart private capital expenditure by announcing viability gap funding and a market-based financing framework for infrastructure projects. This comes even as the Finance Ministry has retained government outlay for infrastructure at ₹11.11 lakh crore for the fiscal year 2024-25.
Shivanshu Thaplyal, Partner, Khaitan & Co said, “The government’s commitment to significant investments in the infrastructure sector remains steadfast. Allocating funds equivalent to 3.4 per cent of India’s GDP for infrastructure development is a substantial boost for private sector growth. Additionally, the introduction of a new market-based financing product is a commendable initiative, further enhancing the potential for robust infrastructure expansion. These measures are poised to drive economic progress and development across the nation.”
Over the past year, players such as Adani group and Aditya Birla group have been announcing big-ticket investments and putting money on the table. The private capex cycle has already begun across sectors as corporates have de-leveraged their balance sheet and businesses are generating good cash, while banks are also now willing to fund expansion projects with the lowest bad loans on books. However, the overall quantum of investments from the corporate sector is still lagging. The private sector is constrained by lack of project funding from banks, which are struggling with deposit growth, and this has led to challenges in private capital expenditure and, in turn, on employment, Rashesh Shah, Chairman, Edelweiss group told businessline recently.
Experts say that the proposal for a market-based financing framework will help in addressing this concern.
Kavita Shirvaikar, Acting Managing Director, Patel Engineering Limited, said, “Encouraging private sector participation through viability gap funding and market-based financing frameworks will foster a dynamic environment for infrastructure advancements. These initiatives are poised to significantly improve connectivity, boost productivity, and create numerous job opportunities across various sectors. By prioritizing sustainable development and leveraging both public and private investments, this budget positions India on a robust path to becoming a global leader in infrastructure excellence.”
Anuj Sethi, Senior Director, CRISIL Ratings said the increase in the allocation of interest-free loans to state governments by 15 per cent to ₹1.5 lakh crore for spending on capital expenditure reflects the central government’s continued focus on infrastructure development. That said, the availability of the majority of these funds will be subject to the state governments undertaking various reforms, including land and labour reforms. In the past, states had utilised only 80-85 per cent of the budgeted levels due to their inability to meet the conditionalities. Hence, undertaking the reforms in a timely manner, which can allow states to utilise the earmarked amount, remains critical, he said.