The low-risk nature of the model will help kick start the private investment cycle
India needs an investment of Rs 451 lakh crore ($6.62 trillion) over the next five years to achieve 10% GDP growth rate by 2023-24. CII in its report on ‘Investment Requirements in India: Roadmap for 2019-2020 – 2023-24’ has suggested that the government needs to consider brownfield asset recycling as an option for its divestment programme.
The low-risk nature of the model will help kick start the private investment cycle. The model will help the government raise resources for its infrastructure and capital expenditure programmes at a time when the fiscal headroom is constrained. This is apart from the government’s disinvestment plans where it sells its equity.
The success of the Toll Operate Transfer (TOT) model for the road sector gives confidence as a well-strategised model of Brownfield Asset Recycling can work very well for many sectors of the economy.
“Constraints on expansion of public investment due to fiscal compulsions makes it even more important and urgent to revive private investments. Brownfield Asset Recycling is a perfect low-risk tool to achieve this,” says CII director general Chandrajit Banerjee.
CII has suggested that the government could put up for sale some of its viable operating brownfield assets such as ports, airports, power plants, roads etc. Private investors get low-risk project options to invest in. Low risk makes the projects attractive to lenders as well.
Many international wealth funds and pension funds are also willing to bring in long-term funds into India for such projects. Government capital, in turn, gets freed up for fresh investments. The proceeds should be earmarked for capital investments.
CII in its report said the turmoil in the financial sector, slowdown in consumption and stalled infrastructure projects have made both lenders and investors risk-averse. Still struggling to recover from the legacy NPAs, banks have been slow to resume corporate lending at levels achieved earlier.
“Investors, especially, those in the infrastructure sector have been hit hard by project delays because of regulatory approvals and issues related to land acquisition. As a result, the investment ratio (in current prices) has come down sharply from a healthy 39.6% in FY12 to 31.0 in% FY19,” it added.
“However, the investment requirements for India to grow at 10% over the next five years is twice the amount invested in the last five years,” says Banerjee.
He, however, insisted that it is important to bring back investor and lender confidence to get the private investment cycle going.
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