BackBudget 2015: Infrastructure investment to be raised by Rs70,000 crore
Jaitley said public investment in the new fiscal year will be Rs1.25 trillion higher than the revised estimates of the last year
Premium(Mint)
New Delhi: The National Democratic Alliance (NDA) government on Saturday rolled out a new policy paradigm by shifting its focus to productive expenditure by making infrastructure creation central to its road map for economic growth.
Finance minister Arun Jaitley underlined the government’s commitment to reviving the investment cycle to spur growth by increasing public expenditure in capital formation, in line with the recommendations of the economic survey it released a day earlier.
Jaitley announced a significant increase of 70,000 crore in investment in infrastructure in 2015-16 over the current year, with a focus on railways and roads. The money will come from an additional public investment outlay of 1.25 trillion over that of 2014-15.
“Our infrastructure does not match our growth ambitions. There is a pressing need to increase public investment," said Jaitley.
The NDA, which came to power in May last year, has put infrastructure creation at the top of its agenda as it seeks to kick-start the investment cycle that stalled in the face of an economic downturn in the past two years.
In the year to 31 March, economic growth is estimated at 7.4% under a new system of measuring gross domestic product (GDP).
The rate of growth is expected to accelerate to 8.1-8.5% in 2015-16 and to a double-digit pace in a couple of years, the economic survey said.
Jaitley said an aggregate annual increase of more than 0.5% of gross domestic product can be expected in public capital expenditure.
The allocation for roads and railways is 40,000 crore each, an increase of 14,031 crore and 10,050 crore respectively over the current fiscal year.
The budget addresses some of the key issues that have stalled investments in the infrastructure sector. Jaitley announced institutional measures to address issues such as access to long-term funding and a legal mechanism to address project disputes. The government plans to streamline the regulatory structures across different sectors of infrastructure and tap additional financial resources.
The finance minister announced the formation of an investment and infrastructure fund and tax-free bonds for raising funds for investment in rail, roads and irrigation.
“I intend to establish a National Investment and Infrastructure Fund which will find monies to ensure an annual flow of 20,000 crore to it. This will enable the trust to raise debt, and in turn, invest it as equity in infrastructure finance companies such as the IRFC (Indian Railway Finance Corp. Ltd) and NHB (National Housing Board). The infra finance companies can then leverage this extra equity manifold," the finance minister said.
In an interview to state broadcaster Doordarshan, Jaitley said this fund will become a major institution for funding public works.
He also proposed introducing a Public Contracts (Resolution of Disputes) Bill to streamline the institutional arrangement for the resolution of disputes that have stalled projects.
Further, the finance minister proposed a regulatory reform law. “There is also a need to tackle the lack of common approach and philosophy in regulatory arrangements prevailing within the different structures of infrastructure. Our government therefore proposes to introduce a regulatory reform law and will bring about a category, cogency of approach across various structures of infrastructure," Jaitley said.
The budget proposed to take measures to deepen the bond market to promote investment, especially in infrastructure, by a Public Debt Management Agency (PDMA), which will bring India’s external borrowings and domestic debt under one roof.
Just like in his last budget speech, Jaitley emphasized the need for a revamp of the public-private partnership (PPP) model that he called “weak" and proposed to start the process by de-risking private sector against the risks that are beyond its control.
“The major issue involved in the rebalancing of risk in infra projects is that the sovereign will have to bear a major part of the risk, without of course absorbing it entirely," Jaitley said.
This is in keeping with the suggestions of the economic survey. In fact, a model called hybrid annuity model has already been introduced in the roads sector to reallocated risks to the entity best suited to manage them.
The economic survey said that the stock of stalled projects at the end of December 2014 stood at 8.8 trillion, or 7% of gross domestic product (GDP).
In order to help unlock capital in completed projects, the budget provides for rationalizing the capital gains regime for sponsors exiting at the time of listing of the units of infrastructure investments trusts and real estate investment trusts subject to payment of a securities transaction tax. The rental income of REITs (real estate investment trusts) from their own assets will have pass through facility.
The budget also proposed to continue levying a road cess on petrol and diesel primarily to fund investments in the roads and railways sectors.
Jaitley announced measures to improve the ease of doing business, including a regulatory mechanism that will remove the need for seeking multiple prior approvals for the setting up of businesses.
Online approvals, and registration for central and excise duties, are expected to create a conducive environment for investment.
In the ports sector, Jaitley said there was a need to make ports attractive for private investment. He said public sector ports needed to both attract such investment and leverage their unused land resources. “To enable us to do so, ports in public sector will be encouraged to corporatize, and become companies under the Companies Act," he said.
A proposal to set up five new power projects of 4,000 megawatts (MW) each in a so-called plug-and-play mode through a transparent auction system was also made.
“This should unlock investments to the extent of 1 trillion,"said Jaitley.
He said the government intends to extend similar plug and play models to projects in roads, rail lines, ports and airports, among other sectors.
The finance minister added that the second unit of the Kundankulam Nuclear Power Plant will be commissioned during 2015-16.
Jaitley said the focus will be on providing connectivity to 178,000 unconnected habitations by all-weather roads. “This will require completing 100,000km of roads, currently under construction, plus sanctioning and building another 100,000 km of roads," the finance minister said.
He also said that any additional fiscal space available after meeting the fiscal deficit targets will go towards funding infra investments.
The minister set a fiscal deficit target of 3.9% of GDP for the fiscal year 2015-16 and announced a road map for the next three fiscals.
“Thus for the next three years, my targets are 3.9% for 15-16, 3.5% for 16-17, 3% for 17-18," Jaitley said.
He listed the key challenges before the government—agricultural incomes under stress, increasing investment in infrastructure, reviving manufacturing, and maintaining fiscal discipline.
“The FM recognized that rebalancing risks is key to enabling PPPs. This is being done in the roads sector, with the hybrid annuity model, and should hopefully be seen in other concession structures, particularly greenfield airports. The PPP environment will also improve as the Public Contracts Dispute Resolution Bill and the Regulatory Reform Law make progress," said Manish Agarwal, partner, leader-capital projects and infrastructure, PricewaterhouseCoopers Pvt. Ltd, a consultancy.
“Plug-and-play level of readiness before tendering projects, and pre-defined guidelines instead of individual approvals, will help bidders focus on what they are best at i.e. efficient delivery. But these measures will take time to implement. In the meanwhile, the increased public spending, should get the construction activity going," he added
G.V.K. Reddy, founder chairman and managing director (MD) of GVK, said, “A very positive and a growth-oriented budget with a strong focus on infrastructure development. Investments of 70,000 crore along with the risk sharing mechanism for PPP projects; setting up of a national investment and infrastructure fund; deepening of the bond markets etc. will help revive infrastructure investment."
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