Sir, last year I had the opportunity to present suggestions to you prior to Budget 2010 through this column. This year again, I have the privilege to reach out to you on behalf of the infrastructure sector through this column.
The last year�s wish list included: Extending Section 80IA that provided for a 10-year income tax holiday.
Abolishing the minimum alternative tax in the period of availment of income tax holiday.
Full pass-through of the dividend distribution tax for infrastructure special purpose vehicles (SPVs).
More From This Section
Treating long-term capital gains tax on sale of equity holding in unlisted SPVs in line with their listed counterparts.
Reviving Section 10 Clause 23G for commercial financiers of infrastructure.
Allowing non-banking finance companies (NBFCs) and commercial banks to raise infrastructure bonds.
Broadening the mandate of the India Infrastructure Finance Company Ltd.
Re-examining the service-tax regime as applicable to infrastructure operations and maintenance (O&M) activities.
The infrastructure sector has taken your message on board that we should try and desist from asking for tax breaks and tax reliefs. The Budget, by itself, has a limited ability to finance the country�s infrastructure needs. However, its ability to create an enabling environment for raising capital and project development is increasing. We have tried, this year, Sir, to restrict our demands for tax breaks but focus on some crucial �enabling� aspects.
In line with these perspectives, here are seven suggestions for your consideration.
A long-term debt market for infrastructure
Three seminal contributions � the Deepak Parekh Committee Report, the Percy Mistry Report and the Raghuram Rajan Report � await action on their extremely well thought through suggestions in this area. We now also have a public announcement on the Rs 50,000 crore infrastructure debt fund, which was reiterated during US President Barack Obama�s visit as a $11 billion dollar debt fund. We look forward to it becoming operational.
Mobilising retail savings for infrastructure
You are aware that the recent offerings of infrastructure bonds by a clutch of infrastructure NBFCs did not garner the response expected. We are aware that a high-level committee headed by Dr Rakesh Mohan has been asked to submit its recommendations to enable a more market-friendly package. We are looking forward to specific instruments with appropriate tax incentives.
Annuity for rural infrastructure
At the PPP Conclave on December 22, 2010 organised by the finance ministry, the World Bank and the Asian Development Bank, you said, �PPP projects should also be directed to people who cannot pay for infrastructure services.� You rightly observed that apprehensions on �availability-based� schemes and �annuity and annuity variants� can be addressed relatively easily by self-discipline. �Annuity� schemes are an excellent method to bring in the private sector into projects that cannot support a market-linked build, operate and transfer (BOT) format.
To start with, we suggest that a Rural Infrastructure Annuity Fund be set up to focus on rural roads, rural electrification, irrigation, drinking water, cold-chains and mandis. Almost Rs 1,00,000 crore worth of expenditure on different rural development schemes like the Bharat Nirman to the Pradhan Mantri Gram Sadak Yojana to the Rajiv Gandhi Grameen Vidyutikaran Yojana is provided for in Budget. Instead of disbursing this through the public-expenditure route, with all its known pitfalls, why can�t all of this be earmarked and put into a Rural Annuity Fund? Annual top-ups through Budget will enable the Fund to reach levels of Rs 30,000 crore in a three-year period. An Annuity Fund of this size would create a huge PPP market. Clearly, the size of the fund, and its ring-fenced nature, would define the extent of annuity commitments that can be made without fear of any Fiscal Responsibility and Budget Management (FRBM) or contingent-liability risks. At one stroke, we also would have by-passed the traditional models of delivery, and created a fresh pipeline of bankable projects.
Defining infrastructure
Currently, infrastructure is defined in 14 different ways by various government bodies. This cannot be allowed to persist for the following reasons:
-
it is an umbrella word that is being loosely used;
-
financial interventions with public policy overtones are being crafted regularly;
-
taxation issues and tax breaks are designed to encourage activities;
-
the Land Acquisition (Amendment) Bill, 2009 provides for the sovereign acquiring 100 per cent land under �eminent domain� to develop infrastructure;
-
the nation measures its performance in terms of the gross capital formation in infrastructure. We must know what it is that we are measuring;
-
various bodies from the apex prime minister�s committee on infrastructure to state-level infrastructure boards must know their playing field;
creating �independent� regulatory authorities for infrastructure supposes that we know what we desire to regulate;
cutting through well-known intellectual debates on the �correct� way to define infrastructure, we simply suggest that India needs to have not one overarching definition of infrastructure, but it should be defined under five clusters � these are core, social, urban, rural and land-intensive. We urge you to take this policy initiative head-on in the forthcoming Budget.
Land bank corporations
Land and environment are two of the biggest concerns for infrastructure developers right now. While the issue of �objectivity� in environment matters is still being sorted out, let�s focus on land matters.
It is necessary for the nation to find a long-term, sustainable, equitable and transparent solution to make land available for economic development. Such a solution has to encompass scientific methods of identifying appropriate land banks, master-planning of activity zones and provisioning essential transportation, energy, water and other links. This is an essential role of the �sovereign� and has to be undertaken in close cooperation with the Centre and states. It is, therefore, proposed that you consider setting up a National Land Bank Corporation (NLBC) with an initial capitalisation of Rs 50,000 crore, under a Parliament Act. As part of the scheme, states are to be encouraged and facilitated to set up their own State Land Bank Corporations in a symbiotic relationship with the NLBC.
National Development Council for Infrastructure
In your interaction with chambers of commerce on July 7, 2009, you mentioned you were in favour (and had apparently discussed with the prime minister) of a National Development Council for Infrastructure. This new body was to have the prime minister in the Chair with all the chief ministers participating, to address infrastructure logjams on a war footing. This is a very powerful idea. We would be delighted to see you take it forward.
Independent regulators
Recent public controversies about lack of transparency and good governance have once again reiterated the long-standing demand for fresh legislation to create truly independent regulatory authorities for various infrastructure sectors. Draft legislation, adroitly prepared by the Planning Commission, has for long been awaiting political will so that it can be enacted. �The open letter to our leaders�, by 14 eminent citizens on January 17 , 2011, points out, �... creation of genuinely independent and constitutionally constituted regulatory bodies, manned by persons who are judicially trained in the field concerned would be one of the first and important steps to restore public confidence.�
We eagerly look forward to your 2011 Budget Speech. Warm regards.
The author is the chairman of Feedback Ventures
The views expressed are personal