‘A seven-pill booster dose’

Finance Minister Arun Jaitley announced a huge boost to infrastructure spending, with a ₹70,000-crore increase in spending from the Centre’s funds and resources of public sector enterprises.

He identified that the infrastructure sector has been neglected in the last decade. With private investment in the sector via the public-private-partnership (PPP) model still being weak, he made it clear that to catalyse investment, public investment was needed.

“I have, therefore, increased outlays on both the roads and the gross budgetary support for the Railways, by ₹14,031 crore and ₹10,050 crore respectively,” he said. The capex of the public sector units was expected to be ₹3,17,889 crore, up ₹80,844 crore over 2014-15.

Besides, he intended to establish a National Investment and Infrastructure Fund (NIIF), and find monies to ensure an annual flow of ₹20,000 crore into it. This will enable the trust to raise debt, and, in turn, invest as equity in infrastructure finance companies such as the IRFC and NHB. The infrastructure finance companies can then leverage this extra equity. He also proposed permitting tax-free infrastructure bonds for projects in the rail, road and irrigation sectors.

Pumping in money Describing the announcements as a “seven-pill booster dose for the infra sector,” Vinayak Chatterjee, Chairman, CII Infrastructure Council and Chairman, Feedback Infra, said the commitment to pump in public sector funds was long overdue, given the ground reality. Public expenditure was needed in the short and medium-term. The Finance Minister had also made it clear that if fiscal space was available, more funds would be pumped into the sector.

Establishing the NIIF would go a long way in attracting more funds into the sector. This was a creative off-budget exercise, Chatterjee said.

Rajiv Lall, Chairman, IDFC Ltd, said the ₹20,000 crore that would flow into the NIIF annually could be leveraged and the impact of this would be five-six fold.

Lall said the commitment of about ₹70,000 crore of investments would translate into nearly ₹2.5-3 lakh crore of total investments, which was about 2 per cent of GDP, a huge boost to the sector.

Revisit PPP mode The Finance Minister said the PPP mode of infrastructure development had to be revisited and revitalised. The major issue was re-balancing the risk. In infrastructure, the sovereign will have to bear a major part of the risk without absorbing it entirely, he said.

Jaitley said the success of the minor ports had proved that ports could be an attractive investment possibility for the private sector. Ports in the public sector needed to both attract such investment and leverage the huge land resources they had. These ports would be encouraged to corporatise themselves and become companies under the Companies Act. The Government, the Minister said, proposed to set up five new ultra-mega power projects (UMPPs), each of 4000 MW capacity in the plug-and-play mode. This should unlock investments to the extent of ₹1 lakh crore. The Government would also consider similar plug-and-play projects in other sectors such as roads, ports, rail lines and airports.

Another significant point that the Minister highlighted was the lack of “common approach and philosophy in the regulatory arrangements” in different infrastructure sectors. “Our Government, therefore, also proposes to introduce a regulatory reform law that will bring about a cogency of approach across various sectors of infrastructure.”

Chatterjee said by offering UMPPs in plug-and-play mode and extending it to other projects would speed up project implementation as the sovereign’s role in obtaining clearances was being clearly recognised. The five UMPPs would also provide a spur to the electrical equipment industry.

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