Infra needs green ratings

Subject :Economy

Section: National Income

In Brief: Infrastructure while growth promoting has negative effects for environmental and social (E&S) outcomes.

Key Points:

The National Infrastructure Pipeline (NIP) outlines an investment of ₹111-lakh crore by 2025.
These investments carry significant economic potential, with a rupee spent on infrastructure yielding a potent multiplier effect of 2.45 in the following year, and 3.14 in subsequent ones.
The government is also equally committed to India’s environmental and social (E&S) goals.

What is the trade-off?

An inherent flipside of infrastructure development is its significant negative E&S impact, creating conflict with India’s Nationally Determined Contribution (NDC) and SDG goals.
For instance, cement and steel are amongst the largest emitting sectors and could increase their carbon emissions six-fold by 2050. Large-scale infrastructure development will likely exacerbate India’s climate risks and socio-economic vulnerabilities.

Green rated projects:

Economic growth can still be achieved without compromising on E&S goals by adopting a sustainable infrastructure development model.
Institutions such as the International Finance Corporation (IFC) and Asian Development Bank (ADB) have their own infrastructure project assessment frameworks for determining their E&S risks.
These, however, are adopted only by projects they fund and not by others. The current project development approach globally is compliance-led without considering the larger E&S goals.
India presently does not have sustainable infrastructure guidelines.
NaBFID can be made the implementing agency for a similar framework.

National Bank for Financing Infrastructure and Development (NaBFID)

The principal idea behind the setup of NaBFID is to provide a dedicated and specialized institution focused on addressing the long-term financing needs of the infrastructure sector in India.
NaBFID was set up in 2021 by an Act of the Parliament to address the gaps in long-term non-recourse finance for infrastructure development, strengthening the development of bonds and derivatives markets in India, and sustainably boosting the country’s economy.
The entire shareholding of the institution is held by the Central Government, which has invested equity of ₹20,000 crore and provided a grant of ₹5,000 crore.
NaBFID shall be regulated and supervised by RBI as an All India Financial Institution (AIFI).
NaBFID has received AAA credit rating from credit rating agencies.
Recently in June , 2023 it raised ₹10,000 crore via maiden issuance of listed bonds of 10-year duration at a coupon rate of 7.43 per cent.