Accordingly to media reports,Union Finance Minister Nirmala Sitharaman recently made a brief statement on the contents of the National Infrastructure Pipeline (NIP). She has indicated that the Government will examine the recommendations of the appointed Task Force and take early action.

A Task Force was constituted to draw up the NIP for each of the years from FY2019-20 to FY2024-25, with the approval of the Finance Minister. The Task Force is chaired by Secretary, DEA, with the CEO, NITI Aayog; Secretary, Expenditure; Secretary of the Administrative Ministries; and Additional Secretary, Investments, DEA, as members; and Joint Secretary (IPF), DEA, as member secretary.

In its detailed report, the Task Force has given recommendations on reform initiatives to be initiated by the Centre and state governments. The report states that to ramp up infrastructure investments in various sectors throughout the country, it is critical to introduce a set of general reforms and update existing sectoral policies and reforms. This will help propel investments in the sector. Some key policies and reform initiatives to be undertaken are highlighted below.

We urgently need a robust project preparation framework consisting of:

• A transparent policy and legislative framework

• The presence of an overarching, capable and empowered public institution for infrastructure planning

• The presence of guidelines, national standards, model-bidding documents and standard procedures, and design considerations, including technology choices and disaster resilience

• Well-defined workflows, multistage reviews, audits and approvals for quality assurance of project preparation documents

• The establishment of a project organisation or SPV with such structure and capabilities.

It is critical to have a deep pool of experienced developers with required competence and execution capacity. To alleviate the lack of capacity for scheduled delivery of projects and development of a pool of private developers, it is necessary to have an effective enabling environment and capacity development of both the private sector and public sectors. Collaborations and JVs with strong global infrastructure developers must be facilitated to build domestic capacity.

An effective enabling environment comprises a robust policy framework and well-developed public institutional capacity. As a general principle, sanctity of contracts should be upheld. Any issues related to contract deviation should be smoothly adjudicated through a dedicated dispute resolution mechanism in a timely manner by focusing on the elements below:

- Optimal risk sharing: There should be optimal risk sharing between the public and private-sector entities and risks should be allocated to parties best equipped to handle them. We need a new mechanism to ensure all key clearances and approvals are in place upfront before awarding the project. Loading contracts with difficult conditions, financial and non-financial, has caused unnecessary burden, leading to financial stress and potential insolvency among developers. This must stop. Hence, we should adoptinternational contract standards (such as FIDIC standards) by all infrastructure departments, including Railways, with clear procedures for change of scope, standardisation of contract and safe exits for parties. Also, project bidding and awards must be done only after fulfilling conditions that are precedent, such as 90 per cent of contiguous land acquisition and all projectclearances. 

- Sanctity and enforcement of contracts: To boost private-sector interest, the sanctity of contracts must be upheld by the Centre, state and local governments. Repudiation of contracts must be restricted only to situations clearly defined in the contract. Provisions of contracts therein should be legally enforceable, which impels the parties involved to legally abide by them. In case of inability, there should be adequate safeguards built in the form of clearly quantified termination payments under various possible scenarios.

This mechanism can be a critical step in addressing dwindling private-sector participation in infrastructure to efficiently resolve disputes related to PPP projects. Adequate investments must be made in the institutions created under The Commercial Courts Act 2015, The Specific Relief (Amendment) Act 2018 and the New Delhi Arbitration Centre Act 2019 to enable delivery of sound results in enabling speedy resolution in the next few years. The Task Force also recommends that ministry-level committees resolve complex contractual issues as mediation mechanisms to settle disputes out of court.

We must undertake steps such as:

• Establisha robust project governance structure

• Use agile planning

• Improve procurement process and strengthening contract management

• Strengthenpeople management processes to improve the project management capabilities of public institutions

• Provide flexibility to hire top talent at the senior level, including project leadership.

Initiatives such as uniform regulation and output-based performance standards need to be adopted, developing consistent processes for updating and setting standards, improving compliance mechanism, and aligning with development strategy and social and environmental sustainability. A number of global benchmarks are available, including the G20 Principles for Quality Infrastructure Investment. The Task Force recommends that a National Framework for Infrastructure Quality is laid down in each sector within the next three months, based on global and national standards.

We need to establish an anti-trust resolution mechanism to expedite the resolution of anti-trust cases, improve collaboration between the Competition Commission of India (CCI) and sector regulators to ensure coordination between them to address competition related concerns, and operationalise the National Competition Policy 2011 to establish uniform competition principles across different sectors. Ministries must build capacity and coordination mechanisms with market players and consumers to periodically assess the state of competition and put in place enabling conditions for the growth of healthy competition.

To address key issues and attract foreign and private capital into infrastructure, it is critical to undertake the following:

- Revitalise the bond and credit markets: A credit enhancement fund (CEF), to be established for infrastructure sector projects, is expected to open up appetites of bond market investors for investing in infrastructure projects. Institutional investors are more suited to fund infrastructure projects given their long-term patient capital requirement. However, strict regulatory requirements require these investors to invest only in safe government and public-sector bonds; they have limited appetite for lower-rated assets (below AA). A well-capitalised CE Institution should be set up early.It is also important that long-term resources from the pension and insurance sector are channelled into the infrastructure bond market. Further, growing the pool of pension and insurance assets through sector reforms is a pressing requirement, including potential FDI reforms.Building up capacity of banking institutions, including IIFCL and SBI, to provide long-term infrastructure finance is vital for growth. The Task Force also recommends suitable governance reforms in IIFCL. The possibility of regulatory reforms enabling and attracting private sector DFI licensing also needs to be examined by the Government in consultation with the RBI.

- Strengthening the municipal bond market in India:To augment their funding source, local governments need to start tapping the bond markets. So far, eight local bodies in India have raised Rs 3,390 crore via municipal bonds. By 2024, 50 cities are expected to issue municipal bonds.Key steps the local government must undertake to raise funds through issuing municipal bonds include improving financial discipline and regular disclosures;augmenting the revenue base and buoyancy of revenues of local governments; addressing the gap in creditworthiness of local governments through innovative credit enhancement structures; and encouraging pooled bond issuances.

- Revitalising asset monetisation: NHAI and AAI have been among the first to monetise operational assets in the past four years. Asset monetisation can be undertaken through sale of land, non-operational assets through long-term lease with significant upfront lease payment, TOT model for operational road assets, InvITs, sale of portfolio of assets to strategic and financial investors, loan asset monetisation through securitisation and value capture financing (VCF). The first pipeline of assets to be monetised by March 2020 have been finalised and options such as TOT and InvITs have been initiated by the Ministries of Power, Shipping, Highways and Railways. The Task Force recommends that the pipeline for the next two years also be finalised within the next three months.The Indian InvIT market is not yet mature and has supported formation of 10 InvITs till date, of which only two are listed. The leverage norms (debt-to-asset value) for InvITs have been recently relaxed to 70 per cent from 49per cent. The Task Force recommends further facilitation and regulatory tweaks to enable InvITs to emerge as a crucial source of financing of public and private infrastructure.

- Enabling user charges to finance infrastructure: We need to determine fair value of user charges to finance and grow infrastructure. Therefore, user charges deduced with an excellent planning, execution and policy framework will provide more clarity to investors and improve confidence. The Task Force recommends setting up independent regulators or legislating regulatory mechanisms (such as the Fare Fixation Committee under Section 34 of the Metro Railways Act 2002) in sectors where such market pricing mechanism is lacking. This can enable fixation of fares at an arm’s length.Alternatively, there may be regulation by contract with price regulation provisions mentioned in the contract itself.

- Long-term financing landscape: The Task Force believes that deepening Infrastructure Development Fund(IDF) markets and developing the asset-backed securitisation market for infrastructure could significantly relieve banks of current exposure in commissioned projects and enable them to direct more capital to greenfield projects. Taking note of the scarcity of long-term capital for infrastructure, the Task Force recommends a regulatory revamp to enable significant participation of FPIs.Inflow of FDI into IDFs, DFIs and securitisation markets may be undertaken in consultation with the RBI and SEBI.