Working as a major partner with the government in the infrastructure sector, multilateral financing institution Asian Development Bank is trying to clear the bottlenecks faced by the sector and improve private participation. In an interview to Himani Kaushik, ADB country head, Hun Kim said the bank is likely to revise its outlook on India soon.
What is the outlook of ADB on India?s economy for this fiscal year?
India?s growth prospects are very bright. India economy is likely to grow at 8.5% but we will review our outlook in February, and most likely, it will be revised upwards. ADB is also confident of increasing lending to India as all the micro indicators are either stable or improving.
What is the outlook of ADB on India?s infrastructure sector?
ADB used to invest something like $2 billion a year, now we have increased it to 2.5 billion a year, an increase of 20%. The main issue with infrastructure sector here is absorbing capacity; financing is a lesser problem, it is the capacity constrain faced in implementing the projects that we need to sort out.
What is the total loan portfolio of ADB for India this year?
This year we have agreed to 15 loans with the total funding of $2.2 billion so far for this calender year.
What do you think are the main reasons for the low response by the private players in this sector?
Firstly, capacity of public sector to be able to develop good PPP models and concession contracts need to be adequately risk balanced. They need to be well defined so that private sector is attracted and public sector is protected.
Secondly, in terms of pipelines of projects, they need to be spaced out well and there is a need to phase out projects carefully. Third is the revenue model, how to give return to the private sector. For example, in the power distribution space, the tariff is simply not enough to cover cost. How do you cover the capital investment? That is the big issue which needs to be looked into.
What do you think is the solution to this?
We need to figure out a way to leverage the government?s capex funding with private sector funding in one package. How do you leverage a tariff that they can pay with a shadow tariff, it can come from a subsidiary arrangement. I suggest an annuity model will be suitable.
What are the new schemes ADB is working on with IIFCL, government?s infrastructure financing arm?
We have provided two large loans to IIFCL, totaling $1.2 billion. We are discussing the takeout financing scheme which is part of general lending to IIFCL. Apart from this, there is the credit guarantee scheme for which we are providing $250 million but this is still at the early stage of discussion. We are hopeful to finalise it by early next year.
What is the view of ADB on the much-talked-about $11 billion infra debt fund?
Yes, we were part of the discussion but we are waiting for the final direction from the government on it.