Infrastructure development dream hinges on faster clearances, better funding

Nine months after the new government assumed power at Centre, the sectors that promised to contribute their might to the 'Build India' story are awaiting the real kick.

While they have been slowly seeing revival through ordinances like land acquisitions, coal auctions and reforms, experts said the power, road and port sectors -- the mainstay of infrastructure segment-- need a major push for a visible change.

The first budget presented by the finance minister Arun Jaitley on July 10, 2014, just 45 days after the NDA government assumed power, was lacklustre and couldn't boost the development agenda of the government.

Experts are now keenly awaiting what would be the first real full-fledged budget by Jaitley.

Can it change the fortunes of India's infrastructure?

Sailesh Haribhakti, managing partner, Haribhakti & Co, believes that faith and trust in infrastructure sector should be revived by improving viability of infra projects through speedy clearances.

"In a PPP (public-private partnership) project, government should take care of clearances. Sovereign funding through countries like the US and Japan can also be an option to infuse liquidity into the sector," he said.

In the power sector, experts said the main problem of power sector in India lies with distribution. The power purchase capacity of distribution companies is low as most of them are reeling under huge debt.

A Subbarao, CFO, RPG Group, said, "Power sector is a victim of state politics. There is no vision on single incremental megawatt of power being produced post 2017."

'Make in India' can be successful only after power sector starts operating efficiently, he said.

The accumulated losses of state power distribution companies (discoms) were estimated at around Rs 1.9 lakh crore as on March 31, 2011, and Rs 2.46 lakh crore as on March 31, 2012. The debt burden of these discoms has risen to Rs 3 lakh crore in the last financial year.

Subbarao said, "All state utilities should be brought under the umbrella of the Centre by transferring all their assets. In lieu of the transfer, the state utilities can be given equity in the new entity. Thus, uniform tariffs can be charged to consumers, new investments can be attracted; the approach will become more professional and modernisation will be possible which will ultimately be a game-changer for the sector."

Experts believe that the coal auction which is currently underway is a step in the right direction, which, if executed properly, will help solve the problem of fuel shortage for the power sector.

"The tariff should be determined according to market forces and clear policies should be framed for power sale during peak time. Bilateral agreements between the buyer and the seller can be a step in that direction," said Subbarao.

Sachin Mehta, power and oil & gas analyst, Centrum Broking, believes that the budget would emphasise on renewable energy sources like solar and wind.

At Re-Invest, a recent government initiative, 14 banks and financial institutions, eight PSUs and private manufacturers, 15 private sector companies gave their green energy commitments. The commitments to build 266,000 mw were received during the conference.

"Tax holidays for power companies which are there for 10 consecutive years post the commencement of the power projects should be extended from the current deadline of 2017. The minimum alternate Tax (MAT) should also be reduced from the current rate of 20% to 15%, so that the cash strapped sector gets a much needed tax relief," said Mehta.

The road transport and highways ministry has set target of building two kilometres per day by March 2015 and 15 kilometres per day in the next two years. The recently passed ordinance on the land acquisition, if passed in both the houses of the parliament will be a booster to the sector.

Deven Choksey, CEO and MD, KR Choksey Securites, said, "Private participation in the road sector should be encouraged. The government should act as a facilitator and set priorities for the growth of the economy."

Although major tax reduction to infrastructure players can't be expected as the government doesn't have the room to cut expenditure but a step towards tax rationalisation and reduction in cumbersome tax process will be a positive sign, said Choksey.

Infrastructure projects have a long gestation period, and in India the projects take longer due to delayed clearances. Thus there is a gap between the project completion time and the bank tenure for loans, turning some projects unviable.

According to Subbarao, the road projects that are unviable or defunct due to lack of funds can be adopted by National Highway Authority of India (NHAI) including the debt, and thus the road developer will be relieved of the equity stake in the project. "This will also help banks reduce their NPA as the debt will be later serviced by NHAI," he said.

India has a huge coastline of 7,517 km. whichgives a huge opportunity to the port sector in international trade.

"The government will give more emphasis to linkage of ports in the upcoming budget. The budget may see announcements linking the major ports to other modes of transport like roads and railways. The ports when linked with each other will also lead to a circular linkage thus improving the efficiency," said Choksey.