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Low risk, quick turnaround tool for catalysing private investments: CII

Monday, June 10, 2019
By A Business Reporter

Brownfield Asset Recycling

The Confederation of Indian Industry (CII) has called upon the Government to consider Brownfield Asset Recycling as an option for its divestment program. The low risk nature of the model will help kick start the private investment cycle. The model will help government raise resources for its infrastructure and capital expenditure programs, at a time when the fiscal headroom is constrained.

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.

“However, the investment requirements for India to grow at 10% over next five years, is twice the amount invested in the last five years”, says Chandrajit Banerjee, Director General, CII. As per a CII report on ‘Investment Requirements in India: Roadmap for 2019/2020 – 2023/24’, India needs an investment of Rs 451 lakh crore (US$ 6.62 trillion) over the next 5 years to achieve 10% GDP growth rate by 2023-24.

“It is important to bring back investor and lender confidence to get the private investment cycle going. 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 Banerjee. This is apart from the government’s disinvestment plans where the government sales its equity.

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 however should be earmarked for capital investments.

“This is clearly a win - win proposition. Another benefit of the model is that with private sector expertise coming into the project, the project efficiency and overall profitability is likely to improve”, said Banerjee.

The success of the Toll Operate Transfer (TOT) model for the road sector, gives confidence that a well strategized model of Brownfield Asset Recycling can work very well for many sectors of the economy, added Banerjee.

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