Welcome infra push

These are perplexing times on the macroeconomic front, but the good news is that the Centre has put its right foot forward. The Reserve Bank of India’s annual report has laid the onus for promoting growth through reforms on the government by hinting that further rate cuts should not be expected in the near future. Perhaps anticipating this situation, Prime Minister Narendra Modi asserted earlier this week, soon after the serial yuan ‘devaluations’, that the Centre should step up investment to keep growth going. This was supplemented by a three-pronged, integrated infrastructure push to spur private investment: extending easy exit norms to all highway projects constructed on a build-operate-transfer (BOT) basis so that the funds can be ploughed into other incomplete highways, power plants or infra projects; allowing States to draw up their own land acquisition laws; and finally, unveiling a list of 98 smart cities which are expected to get Central assistance of ₹100 crore each year over a five-year period. Focusing on India’s sagging investment and internal demand makes a great deal of sense, given our contracting exports and fears of a protracted stagnation in world trade and growth due to the uncertainty over China.

The new BOT policy will help lift PPP projects in infrastructure. It allows developers to exit the project two years after completion, with the norm now applying to all such projects rather than just to those conceived before 2009. This, along with the 5/25 scheme that allows for restructuring of infrastructure loans over a 25-year period with refinancing every five years, will ease up cash flows in debt-strapped infrastructure. However, as the RBI rightly points out, banks should take care to ensure that project financing errors of the pre-2008 phase are not repeated, leading to assets becoming stressed all over again. For this, the net present values of the restructured loans must be subject to close scrutiny. By lobbing the land acquisition issue into the court of the States, the Centre has paved the way for eight BJP-ruled States to go ahead with its amended version of the UPA land law. The rest can go along with the UPA version or introduce variants to suit their respective socio-economic circumstances. This is a neat resolution of a major cause of investor uncertainty and political acrimony.

Urban Development Minister Venkaiah Naidu has rightly pitched smart cities as an effort to create sustainable spaces, driven not just by IT but also by renewable energy and modern waste management practices. The liberalisation of the FDI limit in construction, along with reforms in infrastructure financing, can expedite private participation. While PPPs here can spur growth and jobs, the policy discourse has so far not focused enough on what industry or services activities will be housed in these spaces. These crucial details need to be worked out through a consultative process. Overall, it is reassuring that the Centre is on the right path — of nurturing green shoots amidst the global headwinds.

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