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Building india financing and investing in infrastructure mckinsey

building india financing and investing in infrastructure mckinsey

Three levers can help governments and development finance institutions increase private-sector financing for infrastructure, narrowing some. The pool of capital available is deep. Across infrastructure funds, institutional investors, public treasuries, development banks, commercial. India's urban awakening: Building inclusive cities, sustaining economic growth Funding: Unlock $ trillion in new urban infrastructure investments. FANDUEL AT FOOTPRINT CENTER

Other factors—including the disintermediation of distributors and tighter and more inclusive labor regulations—are also disrupting fossil-fuel industries. Exhibit 2 We strive to provide individuals with disabilities equal access to our website. This suggests that governments could benefit from finding new ways to attract private investment in green infrastructure subsectors.

Boosting private-sector investment Policy makers typically use four types of incentives to attract private investment: first, financial incentives including cash in the form of grants, loans, equity, and credit guarantees; second, fiscal incentives such as tax abatements, exemptions, and accelerated depreciation; third, subsidized inputs such as water, electricity, and feedstock provided at less than their usual cost; and fourth, regulatory incentives such as patent protection duration and changes to corporate, labor, or sector-specific regulations to improve the feasibility or attractiveness of an investment.

As fiscal pressures mount amid rising inflation, slowing global growth rates, and elevated public-debt levels, governments may find it harder to deploy these incentives. But there is a fifth incentive policy makers often underutilize: land portfolios. According to one estimate , corporate and government buildings and the land associated with them accounted for 23 percent of global net worth in As things stand, many governments have large portfolios of untapped real-estate assets that can be monetized as equity or through leasing at preferential cost.

So how can governments assess how land stacks up against other, more traditional incentives? They could evaluate each incentive on two dimensions: impact, for example, the extent to which an incentive might enable a government to attract private investors; and cost, for example, a combination of the burden on government budgets and strain on international commitments Exhibit 3.

Exhibit 3 We strive to provide individuals with disabilities equal access to our website. Making land relevant Policy makers could enhance the value of land and, in so doing, make it a more attractive incentive for private investors. This could be achieved by choosing land that is close to inputs such as raw materials or demand centers such as urban metropolises; ensuring it has access to primary and secondary infrastructures such as transportation and utilities; and changing its zoning status to allow industrial and commercial use.

Policy makers may also control the extent to which they transfer the value of land to private investors. For example, the government of Andhra Pradesh, a state in India, provided land to a private investor for a 13 percent equity stake in Rajiv Gandhi International Airport in Hyderabad. Land leased at a discount to the private sector. For example, South Korea offered ten-plus-year industrial land-lease grants at lower-than-market rates, with sizes and terms depending on the project scope.

Land given as a grant. For example, the Hong Kong government has provided sites to private hospitals at zero premium, but often with requirements such as a proportion of free or low-cost beds and reinvestment of operating surpluses to improve and expand hospital facilities. The applicability of each model varies among sectors depending on the typical role of land in each sector Exhibit 4. Exhibit 4 We strive to provide individuals with disabilities equal access to our website.

The challenges have included a lack of technical expertise to find and value land and bureaucratic hurdles caused by the need to coordinate land transactions with infrastructure and zoning, which requires working across ministries and levels of government. And because the land market is notoriously inefficient in some countries, those governments have to create a mechanism to engage transparently with developers and investors. To manage these risks and increase the use of land as a lever to direct private capital to green infrastructure in line with conservation goals, policy makers could establish dedicated organizations to do the following: Determine the highest and best use of public land parcels, including which parcels might be suitable for partnerships with the private sector.

The answer is that doing so will be challenging but possible as long as India taps the kinds of revenue streams that are part of the everyday life of well-run cities around the world, which have consistently used four sources of funding to drive investments: monetization of land assets, property taxes and user charges that reflect costs, debt and public-private partnerships, and transparent, formula-based government support.

To date, India has underleveraged these avenues. India could systematically increase floor area ratios FAR around central business districts and linked transport corridors and then charge a development fee linked to property rates. In Mumbai, for instance, a FAR increase from 1.

And cities could generate significant funds through the auction of greenfield sites and charge impact fees on all new infrastructure developments on a per-square-foot basis. To date, low tariffs adopted for populist reasons , poor assessment methods, and noncompliance have hindered India's ability to generate revenue from these sources. Today, India collects only an estimated 0. In the case of user charges, India needs to recover a lot more. Poor financial structuring in the past has rendered these types of revenue unviable, and they have contributed less than 5 percent to the funding of urban investment.

Using these three sources of funding, India's Tier 1 and 2 cities can meet 80 to 85 percent of their funding requirements. The rest has to come from state and central governments—another area that India continues to neglect at its peril. Today, local governments bear the majority of the burden of urban spending with very little support coming from the higher tiers of government. All these revenue sources are standard fare in other cities, and there is no reason why India cannot put the appropriate framework in place to access them.

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The government is keen to have the private sector engage in infrastructure. However, there are a number of issues in this. For example, in power sector, coal is an issue, and there is a looming global shortfall. Freight corridor is a non starter. We are under invested in water and we will face shortages here too.

There are enormous delays in the award of project In no case should project delays be acceptable. Absence of a regulator is a constraint in dispute resolution. Having good quality bankable projects is very important, if we expect investors to come in. As a consequence the structural, procedural and preparatory aspect — before financing comes in — has to be looked into. In his view, project delays are unacceptable.

They lead to a reduction in the already low IRR. And quite often, infrastructure projects are caught between the center — state politics. Srivatsava held forth, in his individual capacity. He flagged four major issues: 1. Absence of a good project pipeline. Absence of big ticket equity.

There is no incentive to invest in India. Wide prevalence of corruption. Take out financing has come to mean promoter taking out finance from the project! On a comparative note, China invested at the rate of USD one billion every working day in , while we in India invested USD 25 billion the entire year! Rajan Nair of SBI had a different take on the issue. According to him, there is a pipeline, but narrower. There are problems, but none are insurmountable. SBI has a series of check lists before finance is disbursed.

This forces the promoter to arrange for funding from other sources. This could mean a delay, but this is tolerable in a project of such long duration. But we do not have a choice. We have to invest in infrastructure if our dreams of being a developed nation, get the UNSC seat. On the contrary, we will not be able to provide food, education, shelter and hope to our millions. According to him, the bankability of an Indian project, within the context of project finance.

Robust contractual structures are absent. A combination if basic infrastructure, close to bankrupt qusai government utilities, and delays make the projects unattractive. The bankability of Indian projects shifts to the robustness of the promoter as opposed to the bankability of the contract. However MNC banks can garner other pools of liquidity from overseas. Given the current scenario, international financing will come only in trickles. Vishwanathan, banks have a short term liabilities and lending to infrastructure will create asset — liability mismatches, which will be a big issue under the Basel II regulations, attracting higher capital for asset-liability mismatches.

Banks are the only entity ready to assume project risk. Exhibit India should increase the use of rail for freight to ensure a much more balanced and economical mix of transportation modes. We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. However, a well-planned infrastructure program could help India cut this waste by half and transportation fuel requirements by 15 to 20 percent.

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