FM Sitharaman gives infrastructure sector Rs 16,200-crore liquidity shot

The Union government has provided another push to the infrastructure sector by announcing measures that could infuse liquidity both in companies and lenders.

While the government has relaxed earnest money deposit (EMD) and performance security on government and public sector tenders, it will also put in Rs 6,000 crore as equity in the National Investment and Infrastructure Fund (NIIF), which will be used to create a debt platform for infrastructure financing. This platform will help NIIF provide a debt of Rs 1.1 trillion for infrastructure projects by 2025, Union Finance Minister Nirmala Sitharaman said on Thursday.

Apart from that, Rs 10,200 crore will be given as direct support for infrastructure creation. According to CARE Ratings, the government spoke of spending Rs 25,000 crore on capital expenses in the earlier stimulus, so the total spending on this head would be around Rs 4.45 trillion. 

Another Rs 3,000 crore has been announced for financing projects set up by Indian companies overseas.

Raghav Chandra, former chairman, National Highways Authority of India, however, said more companies might not invest despite the liquidity infusion. “Infrastructure is necessary and spending has to go up and it will also boost allied sectors, like cement, steel, labour. But liquidity may not necessarily influence more companies to get into the infrastructure space.”

According to Sitharaman, performance security on contracts has been reduced to provide ease of doing business and relief to contractors whose funds would otherwise remain locked up. “This will also extend to ongoing contracts and public sector enterprises. EMD for tenders will be replaced by bid security declaration. The relaxations in the General Financial Rules will be in force till December 31, 2021,” she added.

Chandra, however, cautioned that the quality of projects should not get compromised because of lower guarantees. The focus should be on reducing time lag in project awards, which could address the issue of guarantees.

Meanwhile, Shubham Jain, senior vice-president and group head at ICRA, said the reduction in guarantees could bring in more money for companies. “Reduced performance bank guarantee and no EMD will surely lead to savings for the companies in terms of guarantees required.” Currently, the guarantee was in the range of 5-10 per cent and EMD was 2 per cent.

The NIIF platform could provide much needed long-term financing for the infrastructure sector. Apart from the government equity contribution of Rs 6,000 crore for the platform, Rs 95,000 crore of debt would be needed to reach the targeted Rs 1.1 trillion funding.

Arindam Guha, partner and leader – government and public services, Deloitte India, said this would be ambitious. “It would require active participation of pension and insurance funds as well as a bond market with adequate liquidity and depth and is likely to need a relook into the investment guidelines for pension and insurance funds as well as streamlining trading and settlement processes on bond trading platforms,” he added.

The direct Rs 10,200 crore budgetary funding for capital and industrial spending could bring in immediate relief. The finance minister listed three focus areas of domestic defence equipment, industrial infrastructure, and green energy, though she did not provide further details on this.

As many Indian companies, especially those in the public sector and in construction, undertake projects overseas, the Union government would give Rs 3,000 crore to the EXIM Bank to promote project exports under Indian Development and Economic Assistance Scheme (IDEAS Scheme). 

According to David Rasquinha, managing director and chief executive officer, EXIM Bank, it would also further India’s goodwill in the international arena and showcase development capabilities of Indian companies.