Measures announced by finance minister P Chidambaram in his Budget to boost infrastructure growth seem to have enthused the industry looking to invest in the sector. But bigger worries such as faster clearances, especially environmental, and a sound regulatory structure still remain. These, if not tackled, may hold back firms from going the extra mile.
Broadly, the industry is happy with measures such as infrastructure debt funds (IDFs) and investment-based incentives instead of profit-based measures. For instance, firms investing R100 crore or more in plant and machinery between April 2013 and March 2015 would be entitled to deduct an allowance of 15% of the investment in addition to the current rates of depreciation.
?Budget measures are steps in the right direction, but much more is needed to remove challenges on operational fronts that will increase attractiveness of investment in the infrastructure sector,? Satish Mandhana, managing partner and CIO (IDFC Alternatives), IDFC Private Equity, told FE.
He said issues related to land acquisition, effective inter-state coordination for projects, timely environmental and forest clearances, presence of regulators and effective PPP models need to be addressed.
In order to help some firms raise capital, the Budget has provided for an increase in the limit of tax-free bonds from R25,000 crore to R50,000 crore for 2013-14.
L&T Infrastructure Finance said it is a positive move and if not restricted to public sector firms and applicable to private companies, it would like to avail of the opportunity. ?We would like to time an infrastructure bond issue in the second half of the year, and if there is a tax benefit, it will make it easy,? said Suneet Maheshwari, CEO, L&T Infrastructure Finance.
India Infrastructure Finance Company (IIFCL) will also be looking to utilise the opportunity to raise long-term funds through tax-free bonds.
SK Goel, chairman and MD, IIFCL, said in 2012-13, the institution raised around R3,700 crore and the second tranche of the public issue is currently open for subscription. Additionally in the Budget, IIFCL in partnership with the Asian Development Bank (ADB), was directed to offer credit enhancement to infrastructure firms that wish to access the bond market to tap long-term funds.
“Under this initiative, IIFCL in association with ADB is providing partial credit guarantee to operational infrastructure projects in order to enhance their ratings to AA level,” said Goel.
He said this will make bond issuances by infrastructure projects eligible for investments by long-term investors such as insurance companies and pension funds. It will also help in the development of corporate bond market for infrastructure companies.
“Infrastructure projects will be able to convert their floating rate loans to fixed rate bonds and that too at a lower interest rate,” said Goel.
A host of companies have approached IIFCL for availing credit enhancement ,which includes GMR, Larsen and Toubro (L&T) and Kalpataru, he added.
Meanwhile, individual companies and some institutions chose to remain silent on how or whether they would leverage the opportunities being given by the government. Hindustan Construction Company, Morgan Stanley and GMR refrained from responding to queries.
“Most of the announcements made were already work-in-progress for the last six months to one year. And it perhaps helped to reiterate that several initiatives are underway. The larger issues of regulations in sectors like ports or single-window clearances for infrastructure projects, which are the need of the hour, need to be addressed by respective line ministries,” said Manish Agarwal, executive director, PricewaterhouseCoopers.