The road to growth

Jul 11 2014, 08:44 IST
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SummaryAll sectors, be it roads, ports or airports, get a boost with around Rs 62,000-crore allocation

Infrastructure got a big boost in the Modi government’s maiden Union Budget on Thursday with an allocation of around R62,000 crore and more than a mention for every segment, be it roads, ports or airports. Not only did the finance minister earmark generous amounts for roads and smart cities, he created a brand new entity—the 3P fund with a corpus of R500 crore—to ensure that projects taken up in the public-private partnership (PPP) mode don’t get derailed. The biggest beneficiary was the roads sector, which walked away with a proposed investment of R37,880 crore to be housed in the National Highways Authority of India (NHAI), which will target 8,500 km of construction this year.

The finance minister also addressed the issues relating to the financing needs of the sector, permitting banks to raise long-term bonds with minimum statutory reserve requirements—CRR and SLR—that would bring down the cost of funds. “I feel the proposed move to provide exemptions to banks from CRR and SLR obligations by linking those to long-term infrastructure loans will help in mobilising funds through issue of infrastructure bonds,” the FM observed in his speech. He also announced a more flexible structure for infra loans. “Long term financing for infrastructure has been a major constraint in encouraging larger private sector participation in this sector. Banks will be encouraged to extend long-term loans to the infrastructure sector with flexible structuring to absorb potential adverse contingencies, sometimes known as the 5/25 structure,” he said. For the first time, the finance minister introduced a modified REIT-type structure for infrastructure projects, called Infrastructure Investment Trusts (InvITs), which would have a similar tax-efficient pass-through status for PPP and other infrastructure projects.

Hemant Kanoria, chairman and managing director, Srei Infrastructure Finance Ltd, feels the proposed Infrastructure Investment Funds on the lines of Real Estate Investment Funds is another positive step. “We have been advocating for allowing tax pass-through for such funds for quite some time. This will help mobilise more funds for infrastructure from both India and abroad,” he said.

JP Chalasani, managing director and group CEO, Punj Lloyd, said the future looked promising for EPC companies. “The government’s plans to invest large amounts in the oil and gas sector, roads and highways, airports, harbours and ports will offer sufficient opportunities to players in this industry,” Chalasani told FE.

Several companies, such as IRB Infrastructure Developers, Ashoka Buildcon and Sadbhav Engineering, have been participating

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