Back in 1997, the Rakesh Mohan Committee had prepared the first comprehensive report on India’s infrastructure shortfall. Then, it had estimated an investment requirement of $200bn to bring Indian infrastructure to South East Asian levels.
This budget has now burgeoned to $2tn. However, high quality infrastructure in the form of roads, ports, highways, and telecom connectivity is estimated to add nearly 2% to annual GDP growth.
In fact, when Vajpayee announced the Golden Quadrilateral in 2003, it set the tone for rapid GDP growth and the structural bull market. One can imagine the impact that a massive $2tn investment will have on growth.
Here are four things that the budget can do for infrastructure:
Simpler infrastructure on-boarding
That will have to be the starting point. Across India, scores of infrastructure projects are stuck up for two reasons viz land acquisition and environmental clearances. The NDA government did make an attempt to simplify the land acquisition process but it met with a lot of opposition and could not pass muster in the Rajya Sabha. Secondly, environmental concerns have also led to stalling of many infrastructure projects, especially where such projects are in ecologically sensitive areas or in areas that are geologically volatile. The focus of the budget should be to make infrastructure on-boarding simpler. When infrastructure projects are delayed, there is a huge cost in terms of time and cost overruns. Unless this is in place, any infrastructure push will only remain half-hearted.
Get better debt market instruments and debt market infrastructure
Globally, large infrastructure projects have been driven by robust debt markets. Indian debt markets are still too narrow or are limited to government debt raising only. Complex instruments like infrastructure bonds can only be successful in a big way if the risk sharing mechanism is available seamlessly. Secondly, the government can make a start by introducing or re-introducing a lot of tax-saving products that will enhance investments in infrastructure. One way would be to raise the cap on Section 54EC bonds from the current limit of Rs50 lakhs to Rs5 cr so that the genuine HNIs would see more value in participating in these bonds. Section 54EC can also be reintroduced for mutual funds and stocks with an infrastructure focus.
Get innovative structures like BOT / BOOT up and running
Infrastructure financing structures like Build Operate Transfer (BOT) and Bold Own Operate Transfer (BOOT) are useful in spreading risk of the project. More importantly, it brings about a proper public-private partnership where the government does not have to take the entire financial risk. This will not only reduce the risk on the government but bring about greater participation of the private sector on a lucrative basis.
Monetizing collateral assets of infrastructure projects
One of the big challenges that governments face is to make infrastructure projects self-financing. The world over, the entire burden of infrastructure cost is never passed on to the customer. It is partly paid by the customer, partly subsidized by the government and partly recovered by monetizing assets. One way would be to incentivize the infrastructure developers to use the surplus land and property to monetize in a variety of ways so that the actual cost to the customer can be reduced without impacting the project viability.
There are other larger issues too. The government has already made a start by involving the private sector in select railway related activities. The role of the private sector in infrastructure needs to be enhanced. This is the only way it can be made sustainable in the long run. This budget can be a starting point.