WHAT POST-COVID-19 ECONOMY HAS IN STORE FOR PROJECT FINANCESBy Ananya A, SkillxProAbstract: COVID-19 has derailed major sectors, having a direct implication on the employment in those sectors. However, one of the sectors which seems to have been largely un-affected is the Infrastructure and Project Finance sector. In fact, we saw a continued upturn in this sector largely due to government’s push to infrastructure & energy project under the ‘Aatmanirbhar Bharat’ mission, creating consequential upturn in employment in this Industry. Let’s analyse this upturn in projects sector.
On 11 March 2020, the World Health Organization declared COVID-19 to be a pandemic, with “alarming levels of spread and severity". In response, financial markets had plummeted to levels not seen since the 1987 stock market crash. One clear risk for the procurement and financing of projects in March was the impact on liquidity and its knock-on effect on pricing in the debt markets.
As we transitioned to new ways of operating against a backdrop of a volatile global economic outlook, global businesses implemented strategies to ensure they can continue to operate in a rapidly changing and increasingly uncertain legal and regulatory landscape. In the context of a project finance transaction, the interruption of construction or operations had significant implications.
In the Indian context, there is no complete reliance on project and project revenues, and the term 'project financing' in India has morphed to refer to any form of financing of infrastructure projects generally. While, the 2020 Union Budget had sought to create higher incentives for investments in the infrastructure sector by creating a framework for 100 per cent tax exemption for sovereign wealth funds of foreign governments and had also announced a National Infrastructure Pipeline that intends to comprise of over 6,500 infrastructure projects to boost infrastructure development, the COVID-19 situation did give a jolt to these ambitions.
However, a day before the release of the second-quarter growth numbers, Reserve Bank of India Governor Shaktikanta Das on 27th November said the economy had exhibited a stronger-than-expected pick-up in momentum of recovery, and there was revival in the state of economy but warned that the recent surge in COVID-19 infections in advanced economies and parts of India continued to pose a potent risk to growth. Post the festival demands in the country and the probable vaccine induce demands, there is a need for further financial stimulus to energize and strengthen demand in the economy.
In light of these developments, the Finance Minister Nirmala Sitharamana announced 12 new measures under the new Atmanirbhar Bharat 3.0 stimulus package to boost the Indian economy amid the ongoing coronavirus pandemic. The Finance Minister highlighted the growth in energy consumption in October and added that bank credit growth is up 5.1 per cent and stock markets are at a record high. She also mentioned how the RBI is predicting a strong likelihood of economy returning to positive growth in Q3.
Among the 12 points, a pertinent was regarding infusion of equity in National Investment and Infrastructure Fund. The government would make a Rs 6,000 crore equity infusion into the debt platform of the National Investment and Infrastructure Fund (NIIF), which will help the NIIF in raising Rs 1.1 lakh crore by 2025 for infrastructure projects financing. She also announced that private equity participation to also come in the NIIF. NIIF has itself invested Rs 2,000 crore debt platform has a loan book of Rs 8,000 crore and deal pipeline of Rs 10,000 crore.
In other recent news, Pradip Kumar Das, Chairman & Managing Director (CMD), Indian Renewable Energy Development Agency Limited (IREDA) said that IREDA is committed to take forward the Prime Minister’s vision of and ‘Aatmanirbhar Bharat’ in Green Energy sector. He emphasized that the government’s huge renewable energy deployment plans for the next decade are likely to generate business prospects of the order of around Rs 1.5 lakh crore rupees or $20 billion per year, which will be a big opportunity to invest in India. In 2020, a National Infrastructure Pipeline was also announced that intends to comprise of over 6,500 infrastructure projects to boost infrastructure development. The details of project are still awaited, but it looks like a promising development.
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