3.

ECONOMY
3.1. NATIONAL INFRASTRUCTURE PIPELINE (NIP)
Why in news?
Recently, the Ministry of Finance released the Report of the
Task Force on National Infrastructure Pipeline for 2019-
2025 in the public domain.
More on National Infrastructure Pipeline (NIP)
• India needs to spend $4.5 trillion on infrastructure by
2030 to sustain its growth rate.
o The government has announced that infrastructure
projects worth Rs 102 lakh crores will be
implemented by 2025.
• The NIP seeks to implement and streamline this in an
efficient manner.
o To draw the NIP, all the economic and social
infrastructure projects as per the Harmonised
Master List of Infrastructure was taken up and the
projects have been identified.
• This, first of a kind exercise, is expected to be followed
up by a periodical review process.
Importance of infrastructure sector
• Boosting the economy- as India’s ambition to sustain
a high growth trajectory depends on infrastructure for
various economic activities and growing population.
o Both public and private investments depend on
the quality of infrastructure in the country.
o Infrastructure development can also plug the
inefficiencies in the processes, which as per
experts, cost 4-5% of GDP.
• Improved governance- Well-developed
infrastructure enhances level of economic
activity, creates additional fiscal space by
improving revenue base of the
government, and ensures quality of
expenditure focused on productive areas.
• Create employment opportunities- as
quality of infrastructure is among the
biggest hurdles in improving India’s
manufacturing capacity and consequent
generation of employment.
• Improve global competitiveness-as
infrastructure bottleneck is a primary
constraint in terms of India’s
competitiveness, as reflected in the World
Economic Forum’s Global
Competitiveness Index.
o India’s Rank- in overall infrastructure
quality is 70 out of 140 countries. This rank falls to above 100 in areas like water and electricity utility
infrastructure.

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• Builds investor confidence- as identified projects are better prepared, exposures less likely to suffer stress
given active project monitoring by competent authority, thereby ensuring better returns.
o This improved confidence leads to better prepared projects, reduces aggressive bids/failure in project
delivery, ensures enhanced access to sources of finance.
• Improve ease of living- as in order to fulfill various Sustainable development goals (SDGs), India needs to
develop reliable, sustainable and resilient infrastructure in both regional centers and trans-border areas.
• Realize potential of growing urban economy- in required areas such as redevelopment of slum
neighborhoods, urban roads, water supply coverage and quality, wastewater treatment facilities, and urban
mobility through public transport.
Major constraints in Infrastructure sector
• Availability of funds for financing large projects- given the limited fiscal space with public sector and twin
balance sheet problem of Indian economy with overleveraged companies and bad assets of banks.
o Also, the corporate bond market is undeveloped and there is absence of efficient credit risk transfer
mechanisms (such as securitization, credit derivatives, credit insurance etc.)
• Regulatory uncertainty- due to various risks which include procedural delays, lengthy processes in land
acquisition, payment of compensations, environmental concerns, lesser traffic growth than expected etc.
o Due to these, the sovereign wealth and pension funds do not find investing in Indian infrastructure an
attractive option.
• Weak enforcement framework- India is currently ranked 163 out of 190 countries when it comes to
enforcement of contracts.
o There are cases when a developer enters into agreements without any intention to honor it as they do not
fear enforcement of contracts.
• Delays in Indian infrastructure projects- leading to time and cost overruns in the implementation phase.
o A comparison between Indian and Australian PPP model for infrastructure projects could be analysed-
▪ Australia’s predefined criteria for infrastructure bid processes have a time frame of 15-18 months
from initial interest to financial closure.
▪ India’s swiss challenge model to redevelop 23 railways stations had a time frame of 30 months as the
governments had to wait for 18 months to award bids and 12 months more for financial closure.
Major recommendations of the Task Force
• Improving project preparation processes- through a framework which consists of a transparent
General legislative framework, empowered public institution for infrastructure planning, model guidelines
Reforms and standards, well-defined workflows and enabling special purpose vehicle (SPV).
• Enhancing execution capacity of private sector participants- through a clear and consistent policy
framework and collaboration with strong global infrastructure developers to achieve the required
competence and execution capacity.
• Enhancing ease of doing infrastructure projects- through single window approval, mandatory
conditions before award of contracts, effective resolution of contracts using mechanisms like power
purchase agreements.
• Using technology- such as creation of public data sources for adequate data privacy frameworks,
enabling data-based policy decisions, creation of smart infrastructure based on advanced
technologies like artificial intelligence, virtual reality, cloud etc.
• Strengthening Infrastructure quality- by a transparent procurement process, sound governance over
the life cycle of the project and alignment with social and environmental sustainability.
• Disaster resilience- by adopting the knowledge and expertise through the Coalition for Disaster
Resilient Infrastructure (CDRI).
• Environmental Sustainability- by adopting appropriate carbon pricing to stimulate low carbon
investment in energy, transport and other infrastructure in the requisite scale.
• Promoting competition- by speeding anti-trust resolution mechanism, greater collaboration between
CCI and sector regulators and operationalizing the National Competition Policy.
• Regulatory environment- through equitable allocation of risks in PPP, standardization of contracts
and autonomous regulation in all infra sectors that are going in for PPP mode of implementation.

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 • Attracting foreign and private capital into infrastructure- aligning investment guidelines to the long-
Financial term nature of the infrastructure projects such as for patient capital, i.e. insurance and pension funds.
Sector • Revitalising the bond and credit markets- by establishment of a well-capitalised Credit Enhancement
Reforms Institution, governance reforms in India Infrastructure Finance Company Limited (IIFCL).
• Strengthening the municipal bond markets in India- by improving financial discipline and regular
disclosures, augmenting revenue base and buoyancy of revenues of local governments, addressing
gap in creditworthiness of local governments through innovative credit enhancement structures, and
encouraging pooled bond issuances.
• Revitalising asset monetization- through sale of land, non-operational assets through long-term lease
with significant upfront lease payment, the toll-operate-transfer (TOT) model for operational road
assets, Infrastructure investment trusts (InvITs), sale of portfolio of assets to strategic/ financial
investors, and loan asset monetisation through securitisation.
• Enabling user charges to finance infrastructure- through autonomous regulation of tariffs, regulation
by contract with price regulation provisions mentioned in the contract itself and multi-sectoral
regulators for regulation across infrastructure.
• Capital Markets- The setting of proposed Credit Enhancement Guarantee Corporation be expedited
Infrastructure and the government should reform the pension and insurance systems to achieve savings in these
Financing sectors to at least 30% of GDP by 2025.
• Right institutions for the right stage in project finance- to bridge the funding gap. It is imperative to
develop a new class of investors who can bring in patient capital from insurance companies, pension
funds and provident funds.
• DFIs with better credit appraisal skills- The Development Finance Institutions (DFIS) should have
required domain expertise and project appraisal skills. The government may consider a differential
licensing system with an enabling regulatory framework to encourage setting up DFIs in the
infrastructure sector, with domestic or foreign capital.
• External Aid- The ministries and regulators should simplify the procedural aspects of FDI investment
in infrastructure by sovereign wealth funds /global pension funds, improving the ease of investing.
• Projects under implementation- will include following measures-
Monitoring o Resolution of key issues stalling progress, required intervention and responsible party.
and o Timely action to be taken by concerned stakeholders as per the governance structure and
Evaluation escalation matrix provided.
• Projects achieved financial closure (FC) but yet to draw-down funds-
o Establishing the project monitoring Tool for various project milestones (cost and time).
o Establish steering committee comprising representatives from stakeholders such as lenders and
equity investors and assign responsibilities.
• Projects under development
o Delegate powers to Special Purpose Vehicles and hire competent managers.
o Design proper risk mitigation strategies.
• Projects at the conceptualisation stage
o Map key clearances: environment, CRZ, forest clearance, etc along with land acquisition.
o Technology choice analysis – disaster resilience, inclusiveness etc.
Conclusion
Well-planned NIP will enable more infrastructure projects, power business, create jobs, improve ease of living,
and provide equitable access to infrastructure for all, thereby making growth more inclusive.

3.2. REVISED FDI POLICY

Why in News?
Recently, India’s Department for Promotion of Industry and Internal Trade revised its FDI policy in order to curb
the possibility of predatory foreign investment exploiting the financial distress of COVID-19-hit Indian companies.
More on news
• In the last five years, Chinese investment in India has drastically increased from US $1.6 billion in 2014 to at
least US $26 billion in 2019 (both current and planned), in particular in technology start-up segment.
• In the light of this, it was anticipated that Chinese entities would take advantage of the economic slump
caused by the COVID-19 outbreak to raise their stakes in Indian entities and companies, exposing them to
hostile and opportunistic takeovers.

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