Budget 2018: Union budget 2018-19 continued the trend since FY15 of a step-up in outlays for infrastructure. Allocation for infrastructure is up 21% over the revised estimate (RE) for FY18, with roads and railways accounting for 45% of the outlay and 72% of gross budgetary support (GBS). Nearly three-fourths of the outlay is envisaged to be financed through Internal and Extra-Budgetary Resources (IEBR).
Yet the scenario is not hunky-dory, for three reasons. First, there are concerns on the absorption of higher outlays, with the RE of capital expenditure being lower than the Budget 2018 estimates (BE) in some sectors. Second, worry beads are gathering over the investment outlook. The outlays for certain sectors, notably power and renewables, have dipped from FY18 (RE) levels. Third, investment attractiveness remains low in the sector. Conspicuously, there was silence on the revival of public-private partnerships (PPP) in the Budget 2018 speech. That’s perhaps an admission that not much is expected from private capital to fund the infra buildout.
Given the milieu, sharp focus on implementation becomes necessary. The infrastructure marathon can’t be run on pump-priming alone. Building systemic endurance is a concomitant obligation. That, in turn, means all cylinders – the Centre, states and the private sector – need to fire simultaneously. This requires the following steps:
1. Reinvigorating the PPP ecosystem: There is some hard work required to make PPP models equitable and the regulatory and dispute-resolution frameworks robust. Here, the government would be well-served by doing three things: (i) operationalise 3P India as a think-tank and research body; (ii) review capacity adequacy in project preparation at the sector and implementation agency levels. Project preparation even in relatively mature sectors suffers from inadequate rigour; (iii) last, the regulatory and implementation functions of the National Highways Authority of India need to be separated, and the Rail Regulatory Authority needs to be operationalised for independent setting of tariffs.
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2. Strengthening supply-side financing enablers: Creating a deep, diversified and resilient financing ecosystem that moves away from bank-centric infrastructure financing is a sine qua non. In the recent past, proactive policies to facilitate new instruments such as InvITs, IDFs, and introduction of models such as HAM and TOT have been encouraging. The firming of bond yields is an area of concern, and needs to get addressed—notwithstanding the initiatives in next fiscal’s Union Budget. Operationalisation of a well-capitalised National Investment and Infrastructure Fund, creation of allied guarantee instruments for strengthening bond markets and scaling up of asset monetisation are possible actions in this regard.
3. Stepping up structural reforms: The Insolvency and Banking Code, the GST and other recent reforms are aimed at removing structural barriers to investments and ease of doing business. Yet the glass is more than half empty. The Economic Survey 2018 points to the low equilibrium trap of low taxes-weak accountability-inadequate delivery as being at the heart of India’s development challenges, and the need to prevent contingent liability from unravelling. Tardiness in issuance of building permits/utility connections, land acquisition challenges, inadequate sanctity of contracts need political commitment and decisive action.
4. Nudging states to do more: The role of states in development spending has gone up sharply. In programmes such as the Smart Cities Mission, the onus of implementation rests with states and local governments. Such programmes call for greater involvement of the states at design stages, along with appropriate incentivisation for expeditious implementation. States also ought to step-up PPP programmes and consider creation of infrastructure funds.
By Sameer Bhatia
The author is president, CRISIL Infrastructure Advisory