Investment and growth of infra sector will get economy back on track

Hemant Kanoria, Chairman, Srei Infrastructure Finance

An interview with Hemant Kanoria, Chairman, Srei Infrastructure Finance, one of India’s leading asset finance and leasing institutions.

Could you share your views on the infrastructure and infra finance sectors in India?

The infrastructure sector in India employs the largest number of people after agriculture. It also has the largest number of entrepreneurs, contractors, businessman and concessionaries; directly and indirectly almost about 15-20% of India’s population is positively influenced and impacted by the sector. The global pandemic of 2020 certainly impacted this space as it created an unprecedented situation for societies, governments and businesses everywhere.

Our government has worked tirelessly to protect both life and livelihoods. The relief measures, particularly the moratorium on debt payments and the opening of a one-time restructuring window have helped small borrowers, but we need a more sustainable resuscitation of demand. The government has made it clear that an infrastructure-led growth strategy is favoured in order to come out of this recession. We expect some major announcements in that direction from the Union Budget 2021-22.

However, even a sharp relaxation of the fiscal deficit target will not be enough to provide the government the requisite funds to undertake a massive infrastructure expansion programme. Financing for infra cannot be met entirely by the government which is already under stress from the crisis. As the need cannot be met by banks entirely, a broadening of markets is needed. Therefore, resuscitation of private financing - domestic and international, is the need of the hour. The NBFCs specialising in sectors such as infra or others have been playing a significant role in infra financing.

Thus, for a rapid pace of infra creation, having a healthy and vibrant NBFC sector and some out-of-the-box thinking for mobilising resources from private sector, both domestic and international, is absolutely vital. There will be no bigger game changer than investment and growth of the infra sector, to get the economy back on track.

Do you expect the infrastructure sector and infra financing opportunities to expand at a rapid pace over the next two to three years?

That will depend on how fast we can do the necessary groundwork. Some administrative reforms are needed at the ground level for improving the ease of implementation of infra projects. The pace of activity can definitely be expected to pick up faster once the projects under the National Infrastructure Pipeline (NIP) start getting implemented. As the sector needs to attract substantive investments, some learnings and lessons from the past experiences can facilitate in restoring future issues. We need to put in place a new work culture where arbitration awards are paid expeditiously, contractor payments are settled in time and all infra projects come with a ‘deemed clearance’ clause whereby any approval or permission, if not provided within a deadline, are ‘deemed cleared’. The state governments and local administrations must partner the central government in order to draw up a pipeline of shovel-ready projects. That should set the pace for at least the next two to three years.

What according to you are the financial needs of the infrastructure sector?

A national infrastructure pipeline (NIP) of projects has been identified involving investments of about USD 1.5 trillion needed over five years up to 2025. Sectors such as energy (24%), roads (18%), urban (17%) and railways (12%) will account for 71% of the projected investments. Between 2025 and 2040, another USD 3 trillion is expected to be invested in India's infrastructure.

The central government would need to do bulk of the spending, at least initially. However, reviving private investment flows will be the key for which both domestic and international capital is necessary. In recent years, the Government has established new arbitration laws for speedier resolution of disputes, ensured quicker dispensation of awards, fast-tracked clearances for setting up new businesses and reworked bankruptcy and insolvency laws to aid distressed establishments. Although more work is admittedly needed to put us on a surer footing, these are indications that we are keen to make India a preferred destination for investments in the coming years and beyond.

Do you see many international players continuing to play a major role?

International players have in the past, and will continue to play an important role in India’s infrastructure economy. Since the infrastructure sector is capital intensive with a long gestation period, the only way to grow this at a frenetic pace is with additional long term international capital. Presently, due to the accommodative monetary policy followed in most developed countries, there are several low cost funds on the lookout for decent returns. This is an ideal time to attract such funds into our projects. We need funds, these international fund operators need returns – thus we have a perfect dovetailing situation. The Union Budget 2020-21 allowed 100% tax exemption for Sovereign Wealth Funds for investments in Indian infra projects. These can be the right vehicles for tapping such funds. The opportunities in the infrastructure sector in India are huge and the international investors can definitely explore investments.

Could you share your company's activities in this sector?

Historically, in addition to the core business of equipment financing, Srei had also been financing infrastructure projects and structured loans, both short term and long term, directly and through SPVs. However, equipment financing has been our core business and we have a dominant presence in the space of construction and mining equipment, healthcare equipment, IT equipment and agricultural equipment. We wish to focus on our core expertise, i.e. equipment financing since we have created a strong franchise that we built over the last 31 years. Our strong OEM relationships, ~100,000 customer base and long standing institutional partnerships with capital providers will be instrumental in consolidating our leadership position.

Keeping pace with the current times, we also adapted to the digital era by becoming the first company to take our core business of equipment financing online so that we can successfully leverage the opportunities and efficiencies that technology can offer. We hope that 2021 will be a defining year for us and the sector.