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How Finance Minister Arun Jaitley can clean infrastructure sector off its myriad cobwebs

Friday, 4 July 2014 - 6:15am IST | Place: Mumbai | Agency: dna

The wishlist

Fast-track the project clearance and implementation process

Reduce regulatory uncertainty and simplify project clearance process

Rekindle private sector involvement in infra space, especially in roads

Identify 100 'must-do' projects like the DMIC, dedicated freight corridor, highways, railroads, airports

Make infra projects viable by encouraging investment through infra funds/trusts

Fiscal deficit in the first two months has hit a six-year high of 45.6% of the full-year target on high non-Plan spends, while tax receipts crawled up 3.1% against a projected 19% print, indicating the badly stretched finances. It will, therefore, be imprudent to expect that finance minister Arun Jaitley will wield a magic wand on July 10, and push for an investment-led growth to revive the moribund economy.

Already stubborn inflation is inching up again on a drought scare; eight core sector data for May nearly halved to 2.3% from April's 4.3%; crude is at alarming levels; and the rupee is losing its sheen again after three quarters of gains. But, luckily, none of these have dampened the overwhelming positive sentiment.

Still, how much can we expect from the Budget, especially for the infra sector, which has been worst-hit and yet the best bet to kick-start the economy that has vastly veered off its trend growth in the past two years?

Reports suggest that infrastructure may at best get a paltry Rs 11,000 crore boost, or just 2% more than the last year. This isn't even a drop in the infra ocean that needs trillions of dollars. So, expecting a higher investment-led growth push is well ruled out given that he can't just let the fiscal gap balloon.

The FM can, however, do a lot to boost the sentiment by initiating the following measures:
Fast-track the project clearance and implementation process and get the billions worth of stalled projects going: If not all of the stuck projects are taken up on priority, he should at least ensure that those cleared by Project Monitoring Group in the PMO since last June are off the ground.

The FM should also reduce regulatory uncertainty and simplify project clearance process. The best foot forward is to set up a single-window clearance, as the biggest hurdle today is the entangled clearance process. The proposal to take environmental clearances online can be a big leveller.

He has to announce amendment to the new land law, which is cumbersome and too costly now, otherwise, no large projects will ever come up.

Rekindle private sector involvement in infra space, especially in roads: Since infra can't survive just on budgetary allocation, he should reignite the fire in private sector road developers, who have got not only burnt their fingers but their entire arms in the past. This is critical, as neither the government nor banks can fund the projected Rs 1 lakh crore investment needed over the next five years.

The proposed road development fund will go a long way in helping the dogged roads sector. The share of private sector investment in infra space is set to touch 47% by fiscal 2017 from 22% in fiscal 2007. To achieve this, he should renegotiate the concession terms of public-private partnership (PPP) projects so that stalled investments can be recovered through re-bidding or restructuring. Also, he has to make provisions to award Rs 2 lakh crore worth of infra projects on annuity basis to encourage PPPs.

He must also bring down current threshold of Rs 1,000-crore to be cleared by the PMG to lower size to achieve faster results. It will be wise to set up state-level mechanisms, a la central PMG to review and monitor such projects.

The budget must identify 100 'must-do' projects like the DMIC, dedicated freight corridor, highways, railroads, airports, high-speed rail network, irrigation, housing, construction etc. To begin with, consider PPP in the Railways.

How can he fund all these? The only answer is that the FM should help make infra projects viable by encouraging investment through infra funds/trusts that would help them achieve financial closure on time.

Why not launch overseas dollar and rupee-denominated sovereign bonds or a fund created with the over Rs 1.5 lakh crore cash surpluses of PSUs?

The writer is managing director, Singhi Advisors




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