Experts call for private sector participation to develop infrastructure

Terming India’s fiscal situation as serious, corporates and experts have called for prudence to cut deficit without reducing spending on the infrastructure sector. At a time when 40 per cent of the government’s revenues were going towards interest payments, it was important to increase private sector participation in infrastructure to keep costs under check.

“We don’t mean mindless cutting of costs and deficit. There is room for, and we should aim at, a number [for fiscal deficit], say 3.5 or 3.6 per cent, and stick to it. Sanctity of Budget is promise and keeping it,” Aditya Birla Group’s chief economist, Ajit Ranade, said at a pre-Budget panel discussion, organised by The Hindu Business Line , in Mumbai, on Friday.

One way of increasing private sector participation and reducing the government’s outgo on infrastructure was by corporatising Railways, ports and the National Highways Commission. “Ports are run like government departments. They can become like companies and place some equity into the market to tap non-government sources of funds,” Essar Ports CEO, Rajiv Agarwal, said.

Currently, not much private investment is flowing into the sector. While private sector remains keen on investing in infrastructure, it is holding back both for want of opportunities as well as commensurate returns. “The government should look at recycling assets and create an ecosystem where private sector can invest. Today, Railways is offering only 6 per cent interest. Investors want more reasonable returns,” said Seshagiri Rao, Joint MD and group CFO at JSW.

Umesh Revankar, CEO and MD, Shriram Transport Finance, pointed out that while China was spending more than 10 per cent of the GDP on infrastructure, the figure for India was less than seven per cent.

“I strongly believe that the government must spend on infrastructure if India has to go up from the present level of infrastructure,” he said. With a weak rural-to-city infrastructure, migration to urban areas is high.

“Rural infrastructure is crumbling. If more investment is made there, many people will not migrate and the pressure will be less on urban infrastructure,” said Revankar, adding that the government needs to cut its own size to reduce expenditure.

Globally, infrastructure has become one of the most attractive investment classes. “However, in India, the risk perception is different. The concept of predictable cash flows is disappearing. Industrial corridors, smart cities provide opportunities for creating new models of partnerships between the government and private sector. And these opportunities should be tapped,” said Manish Aggarwal, partner at PwC.

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