#TIL: Future of Clean Mobility: Bonds for Financing and Building PPPs
By Sreelakshmi R.
Governments often operate at fiscal margins, especially in developing countries like India. Frequent borrowings and deficit budgets are the norm, and government-run companies approach a variety of funding sources, including the members of the public, to finance long-term investments in fixed assets like infrastructure. Such moves are incentivised by attractive interest rates and tax breaks, with the government acting as debtor and guarantor. These instruments, called bonds, are often issued according to sectors that require such an investment.
Infrastructure development in India has recently received a policy push with the administration announcing an ambitious National Infractural Pipeline (NIP). The goal is to invest upwards of INR 111 lakh crore to develop various infrastructural projects in energy, transport and urban areas, among others. The task force set up to handle the implementation of the NIP has also recommended urgent revisits to the bond and credit market in India to allow financing of this scheme through market-linked instruments. It also has opined that owing to the long-term nature of such infrastructure, it is crucial for the government to work with private partners and take future-forward decisions now, “and promote changes in behaviour, before the speed and severity of climate change are fully known”.
Bonds are a creative way to finance large infrastructure projects, as these public fixtures are ultimately for citizens’ use. Therefore, infrastructure bonds help inculcate a sense of collective ownership, and can accelerate the adoption of newer technologies. For instance, the push for electric mobility in India, in the interest of climate friendliness and pollution reduction, suffers from the lack of reliable electric charging infrastructure. This is crucial to accelerate electric vehicle (EV) adoption and to instill public confidence by mitigating range anxiety. Therefore, EV charging networks are a viable and necessary candidate for the infrastructure bond offering in India. With the NIP proposing that almost a third of infrastructure financing requirements be met through bonds and such market-linked products, EV charging infrastructure bonds could prove timely.
The energy sector receives 24% of all infrastructure bond investment outlays- and finance renewable sources like hydro-electric power. But promoting cleaner energy sources like solar and wind can boost efforts to achieve holistically clean mobility, with renewable energy powering EVs on Indian roads. Debt market instruments called green bonds train their primary focus on financing projects with environmental benefits, and would be a great fit in this context. Therefore, by acting as innovative mechanisms to raise credit as well as build trust among the citizens, these new bonds hold a great promise of planning with the climate agenda front and centre.
Today I learnt (TIL) is a weekly series by OMI that brings you interesting nuggets of information that you didn’t know you needed.
Follow us on Twitter for regular updates.
