There can be no two opinions that India needs massive amounts of investment in the infrastructure sector. The infrastructure sector is in crying need of attention, with almost any amenity being stretched too far. Roads, bridges, ports, airports, sanitation, water, electricity – you name it, India is in dire need of the same. There are a number of stalled projects which have been held up either for want of finance or for green clearances or for other regulatory hurdles such as land acquisition.
Kickstarting the infrastructure sector will not only go towards improving the basic necessities for citizens and improve quality of life; it will spur economic growth as well. Improvement in infrastructure is also part of the BJP’s poll promise. Infrastructure is also necessary for any kind of sustained industrial activity.
The most important provision for the infrastructure sector is the restarting of the PPP model – the Public Private Partnership model, whereby private players will be allowed to participate in infrastructure building. In this regard, the government has stated that it will bear a major portion of the risk. The PPP model was the main plank of growth for the infrastructure sector a decade ago, but a number of risks have since inhibited the growth of this model – for example - the toll model carries a political risk which cannot be borne by the private player. The Build Operate Transfer model is therefore no longer finding favour. It is hoped that the proposed Public Contracts (Resolution of Disputes) Bill and the Regulatory Reform Bill will help to get stalled projects going again. All these measures will cumulatively give some degree of comfort to lenders in the infrastructure sector.
There is a proposal for a National Investment and Infrastructure Fund (NIIF) with an annual fund inflow of Rs. 20,000 crore. This will help to improve the balance sheet of infrastructure finance companies such as NHB (National Housing Bank) and IRFC (Indian Railway Finance Corporation). These institutions will then have sufficient leverage and refinance capabilities and this is expected to have a positive effect of credit facilities down the line to infrastructure companies. Additionally, it is proposed to issue tax free infrastructure bonds in the rail, road and irrigation sectors.
Five ultra mega power projects are also proposed in this budget. These are expected to function as a plug and play model, whereby the winner of the project can begin with project implementation right away without seeking further regulatory clearances. The projects itself will be awarded in a transparent auction system. This is expected to unlock investment of about Rs. 1 lakh crore.
The Finance Minister Mr. Arun Jaitely has also called for the corporatisation of the ports in the country. The ports could also use the huge lands in their possession that remains unused. All weather roads are proposed for connecting the 178,000 unconnected habitations in the country. The Finance Minister has recognized the pressing need to address infrastructure in the budget and the need of public investment in a big way to catalyse progress in this sector. It is the infrastructure sector that is after all expected to take the economy to the next level.