A work in progress

Regulatory and contract enforcement challenges continue to cast a shadow on the infrastructure sector, writes Rebecca Abraham

The Indian government’s proposed spending on infrastructure hit a record high in February, with Finance Minister Arun Jaitley announcing that the total outlay for infrastructure development for the financial year 2017-18 was to be ₹3.96 trillion (US$60 billion), up from ₹2.21 trillion in the previous financial year.

Infrastructure development, Jaitley said, was a key element of the government’s agenda to “transform, energize and clean India”.

Private investors wanted

Even as the government increases its spending for infrastructure development, it has been working to draw private investment into the sector. The government has introduced several measures to achieve this, including allowing business trusts specifically for the infrastructure sector (InvITs).

Public offerings successfully concluded in May by two new InvITs suggest that investors are finding value in infrastructure. The first offering – by a trust sponsored by road developer IRB Infrastructure Developers – was subscribed 8.57 times. Investors appeared less enthusiastic about the second, which was backed by one of the country’s leading power transmission companies, Sterlite Power Grid Ventures, but still it was subscribed 1.17 times. (See Evolving structures for more details of the offerings.)

The listings have allowed their promoters to successfully monetize completed assets and raise funds for other projects.

“Given the capital-intensive nature of these sectors and the limited options available to infrastructure developers for raising funds, business trusts offer a way forward,” says Vineetha MG, a partner at Samvad Partners, which advises lenders, project sponsors, equipment suppliers and private equity investors in infrastructure projects.

But as Justin Bharucha, a partner at Bharucha & Partners, points out: “India is now witnessing the beginning of [an] investment cycle and whether or not these investments will quickly result in operational assets is the real test.”

Key hurdles

The challenges faced with regard to funding a project are arguably in part a result of the other roadblocks faced by the sector.

A key hurdle has been land acquisition, which has often proved to be tricky.