Union Budget 2019: Priming the pump for investments, infrastructure

Finance Minister Nirmala Sitharaman shone a bright light on the news for increased investments and sustained infrastructure spending. These are needed in order to create jobs, increase productivity and competitive advantage and get the vaunted “virtuous cycle” in motion. 

The announcement of the public sector bank recapitalisation target of Rs 70,000 crore is expected to kick start lending activities, a key requirement for private sector investments to accelerate. The decision that public infrastructure projects can now be built on land parcels held by central ministries and central public sector enterprises helps fill an important need and will enable productive asset recycling. These can be accomplished through the use of innovative instruments such as joint development and concessions. The unlocking of these land resources should advance public infrastructure and affordable housing.

On the foreign investment front, ensuring a harmonised and hassle-free investment experience for foreign portfolio investors will help enable large cross-border capital flows. The widening of the investment threshold of FPIs from the current permitted limit of up to 24 per cent of paid up equity capital to sectoral foreign investment limit should help attract additional global investments. For instance, in the insurance sector, an FPI would be allowed to invest up to 49 per cent vis-à-vis the earlier limit of 26 per cent, making it at par with foreign direct investment. 
 

Another innovative approach to bridge the shortfall in capital outlay was to propose public private partnerships for expansion in railway infrastructure. Similarly, the proposal to further FDI in aviation, moving towards setting up of full-scale MRO operations and aircraft leasing will serve the sector’s ambition to become the world’s third-largest global aviation market by 2024. The silver lining also may be that the FDI boost would enable the government’s disinvestment ambitions in this sector.

The government’s ambition to mobilise global savings from pensions funds, insurance companies and sovereign wealth funds is expected to be a key enabler in not just helping India integrate into global value chains but also become a part of the global financial ecosystem. The announcement to organise a global investor meet in India is a welcome move and can act as an anchor to source international capital for funding infrastructure projects across roads, railways, seaways, inland waterways, amongst others. This fits synergistically with steps taken in the recent past in areas of brownfield asset monetisation, setting up of InvITs and REITs and NHAI’s Toll Operate and Transfer models where India has tasted remarkable success.

The announcement of an expert committee on infrastructure financing can lead to important policy improvements in this critical area. And policy moves would be welcome to create a deep bond market and will help unleash the capital needed to support the growth needed to achieve the ambition of a $5-trillion economy in just a few years.  

The writer is chairman & CEO, KPMG India