Covid Challenges On Financing For Infrastructure Projects

Covid Challenges On Financing For Infrastructure Projects

November 06, 2020 Admin
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The novel Coronavirus that originated from a small place in China, has resulted in disruption in the everyday routine all over the globe. As per the recent data, it has claimed the lives of about 12 lakhs people of all age groups. It has also had a disturbing effect on all aspects of our life. A country like India with a developing economy has been one of the worst afflicted during these difficult times. This has also made it difficult to procure financing for infrastructure projects. An increasing rate of unemployment, along with the unexpected recession, could be observed due to the lockdown that has lasted for over three months. This increase in unemployment has been there mostly in the unorganized sectors due to the discontinuation of transport services, termination of government services, and closing down of factories. The financial relations between countries around the world have been affected due to the growing stress of managing social and economic problems that have occurred due to the pandemic. A similar situation was observed in Africa during the outbreak of the Ebola Virus.

The labor class has been the worst affected in terms of employment. Numerous industries have been facing a shortage of workers due to the halt in public transportation services etc. It has also resulted in hassles in obtaining financing for infrastructure projects.


Impact on the infrastructure sector

The infrastructure sector in India, which is infamous for delayed projects and over the top expenses for projects, has been badly stirred by this pandemic. To provide employment and have stable growth, industries need to have adequate resources such as power supply, transportation facilities, digital connectivity, etc. The shortage in demand has further added to the troubles of many sectors. Along with this, there is a lack of resources with the government for providing direct funds for infrastructure projects. Hence the pandemic has led to unexpected challenges for the industrial sector.

The impending challenge for the people working in the construction sector is managing the working capital. Due to the hindrance in operation because of quarantine, many contractors have not yet received their dues. Most sectors of the economy are also experiencing a delay in milestone-based payments due to this crisis.

 The government needs to understand that the development in the economy goes hand in hand with infrastructure development by providing financing for infrastructure projects. Many developed countries have experienced a growth in GDP by investing in the infrastructure areas. It helps to provide support to economies in situations of financial crises.

The government has started to work on its vision to create a national infrastructure pipeline. It has planned for investment of about 100 lakh crores in the infrastructure sector in its five-year development project. Along with this, many highway projects with a budget of over 15 lakh crores have been initiated to make roads more accessible. Once these projects have been completed, one can expect growth in almost every aspect that enhances India's economy.

Covid Challenges On Financing For Infrastructure Projects

Impact on the non-banking financing sector ( NBFC )

The self-employed borrowers in the retail area are usually given preference for funding by the non-banking financial sectors compared to the salaried professionals. In the current times where Covid has adversely affected the economic sector, an increase in credit risk is likely to be experienced by the businesses. It can lead to a lack of alternative funding options as their credit score might not be enough to meet the banks' requirements. These NBFCs have shifted their focus on collection in the current situation of economic crises. It could pose as a significant challenge to meet up with the loan obligations when the cash flow would be reduced.

Hence it would be beneficial if the government secures the economy by being prepared for the worst by providing financing for infrastructure projects, which would prevent such a situation of economic crises from arising again. The disruption in the economic scenario impacts all types of financial organizations along with the people associated with it such as  lenders and shareholders. Even private developers are facing a scarcity of funds to finance infrastructure projects. Thus, a comprehensive action plan and the government's sincere efforts in providing financing for infrastructure projects can act as a savior for the economy.

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