Policy tweaks for investment in airports and roads

Mains Paper 3: Economy 
Prelims level: Hybrid annuity model
Mains level:  Infrastructure: Energy, Ports, Roads, Airports, Railways etc

Context 

• India has become the third-largest aviation market in the world
• For both Indian developers and international investors, this presents a huge opportunity
• Privatization of metro airports undertaken earlier had yielded good returns for developers
• A significant recent announcement was the Cabinet approval for privatization of six airports. It comes at a good time—when investment in the sector is improving
• The Crisil InfraInvex an index that tracks the development and investment attractiveness of the infrastructure sector—score for the aviation sector has already risen to 6.5 in October 2018 from 6.1 a year ago (on a scale of 10, where 1 indicates least attractiveness)

The sector expanding its wings

• Domestic airlines will together boast of one of the largest fleets anywhere in the short to medium term
• As of August 2018, they have ordered 1,055 aircraft, with orders for another 100 wide-body aircraft expected over the next 12 months
• Airlines need to pump in close to ₹3.5 trillion for fleet expansion by 2027
• The fleet expansion also opens up a huge potential to develop India as a maintenance, repair and overhaul (MRO) hub
• The $776 million MRO business in India is estimated to grow to more than $1.5 billion by 2020
• The overall investment potential for Indian aviation (airlines and airports put together) is estimated at a whopping $100 billion over the next 12-15 years

Handling privatisation 

• The government should make sure that all the land required for development is made available at the bidding stage itself.
• It should provide an easier exit option on achieving the commercial operations date.
• It should have more clarity on the bidding parameter—whether to follow a revenue sharing model, as in cases of brownfield airports, or as suggested by the consultative paper, to cap the yield and make concession fee as the bidding parameter.
• The risk should be apportioned equitably among partners.
• A robust industry-focused tribunal should be put in place for expeditious resolution of issues.

Roads sector

• The roads sector has seen significant policy changes in the past couple of years and the average construction done per day has quadrupled
• New public-private partnership (PPP) models, such as the hybrid annuity model (HAM), and asset monetisation programmes, such as toll-operate-transfer (TOT), have been set in motion and have achieved initial success
• The Crisil InfraInvex score for roads has risen to 7.4 (in October 2018) from 6.9, primarily because of the successful launch of the TOT programme, which brought a new class of investors into the sector
• Also, bringing out the next five-year-plan as envisaged in the rollout of the Bharatmala programme
• Increased award and construction have also helped boost the investment attractiveness of the sector

Addressing issues of road sector

• As in the case of airports, here too the government should be ready with all the land required for construction. In other words, it should make available shovel-ready projects for the bidders. This is important given the problems faced while acquiring land for industrial use
• About 50% of all projects awarded in fiscal 2018 are under HAM. Given the challenges in terms of budgetary resources, the time is ripe for getting built-operate-transfer (BOT) back in the fray. At present, the share of BOT projects is not even 10% compared with the government’s decision to execute future projects through HAM, engineering-procurement-construction (EPC) and BOT in a ratio of 60:30:10
• Address the banking sector’s concerns over funding of HAM projects
• Encourage more developers to come up with infrastructure investment trusts (InvITs), which are an excellent exit strategy tool

Way forward

• Both airports and roads are at an inflection point and have generated the interest of a varied category of stakeholders
• A continued policy push and a clear road map of development will increase stickiness among the investing community

Online Coaching for UPSC PRE Exam

General Studies Pre. Cum Mains Study Materials

UPSC Prelims Questions: 

Q.1) In a mixed economic system
a) Only consumer goods are produced for sale in a general market
b) Profits are shared between government and capitalists
c) State-run enterprises are disinvested once they start making profits
d) Both the government and the market together decide the economic production and distribution
Answer: D

UPSC Mains Questions: 
Q.1) Critically evaluate the importance of airports and roads are at an inflection point and have generated interest among stakeholders.