A lot has been written over the last decade over India’s infrastructure requirements...
A lot has been written over the last decade over India’s infrastructure requirements. The government has taken the right steps to meet them through the Union Budget 2015-16.
The visionary and long-term approach of the Budget is to revive growth, particularly in manufacturing and infrastructure sectors that form the backbone of the “Make in India” campaign. The focus on infrastructure in the Budget will revive investor confidence; channelise funding and invigorate investments in the sector while maintaining fiscal prudence.
India’s infrastructure development is set to accelerate, backed by the underlying commitment that extra fiscal allowance will be channeled primarily into infrastructure spend. An example is the increased outlay of R140 billion on roads, and R100 billion on Railways to strengthen the platform for delivery.
To give the initial thrust, capital expenditure of public sector units will go up to R3.17 lakh crore, an increase of Rs 80,000 crore, thereby boosting the sector. To address funding issues, the proposed establishment of the National Investment and Infrastructure Fund (NIIF), with an annual flow of R20,000 crore, will help to spur growth and investment in the infrastructure sector.
Based on past experience with public-private partnership (PPP) mode of infrastructure development, the move to rebalance risk by developing a hybrid model where the sovereign undertakes to bear a major part of the risk would help revive and rebuild investor confidence. This along with an appointment of expert committee to reduce multiple prior permission with a pre-existing regulatory mechanism on the lines of e-Biz Portal, will facilitate the ease of doing business and remove obstacles to high-value project clearances.
One of the prerequisites for improving access to cheaper finance for the infrastructure sector is to deepen the Indian bond market. Measures like setting up a Public Debt Management Agency (PDMA) to bring India’s external borrowings and domestic debt under one roof is a step in this direction.
To channelise investment by attracting foreign capital, measures like allowing allow foreign investments in Alternate Investment Funds (AIFs) and removal of distinction between FPI and FDI will make investments easier.This along with the move to rationalise capital gains for the sponsors exiting at the time of listing of the units of REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trust) and tax ‘pass through’ proposed in the category-I and category-II AIFs would help raise investments.
To further fund this government initiative, conversion of existing excise duty on petrol and diesel to the extent of R4 per litre into road cess would help fund investment in roads and other infrastructure by releasing an additional sum of R40,000 crore.
While the government can and should encourage state-owned enterprise to increase capex, the key to a sustained recovery in infrastructure cycle will ultimately depend on the private sector. In this regard, the reforms that the government is taking up will improve the returns on investment for the private sector, acting as an incentive for them to further undertake investments in infrastructure. With this policy impetus, India is in a relatively strong position to channelising investment into infrastructure.
Rana Kapoor, MD & CEO, YES BANK and President, ASSOCHAM