Coming as it does at the beginning of the 12th Plan, and given the downbeat mood, there is genuine expectation from Budget 2012-13 that there will be far more action-orientation and policy-setting than house-keeping and populist schemes. The infra sector is keenly awaiting some energetic “get going” stimuli as it currently battles with the “triple whammy” of depleting order books, broken cash cycles and high debt leverage.
There is a misconception that the Union Budget does not matter for the infra sector. “Kya pharak padega? (what difference will it make?)” is the cynical view. But that is not true. Consider this. The infra portion is 15 per cent to 17 per cent of the total Budget. But of the real discretionary portion, that is, Plan Expenditure, the share of infra was 48.5 per cent last year. Equally importantly, the Union Budget provides outlays for around 38 per cent of the Five-Year-Plan targets. According to the 11th Plan, the nation needed Rs 4.5 lakh crore a year and the Union Budget was able to provide Rs 1.73 lakh crore of that last year.
What, then, are the key expectations from the forthcoming Budget?
First: a greater thrust towards increasing intermediation of retail savings into infra debt. A good beginning has been made with private-sector infra- NBFCs and public sector undertakings offering infra-bonds. There is media speculation of enhancement of the exemption limit in infra-bonds for retail investors from the current Rs 20,000 to levels of Rs 50,000 or even Rs 100,000. Linked to this should be the speeding up of the implementation of the $11-billion national infra debt fund (announced when President Barack Obama was here) and revisiting the strict credit rating and associated conditionalities that limit pension and insurance funds from channelling savings towards infra debt.
Second: there is merit in considering the annuity model for rapidly developing infra in rural and underdeveloped regions where market-driven public-private partnership projects fail. Under annuity, the private sector can be roped in to mobilise capital, undertake construction and operations and maintenance for roads, irrigation et al and be paid an annuity (or rent cheque) for a concession period of, say, 20 years. The issue here is the build-up of future liabilities of the sovereign to service these annuities. The solution is simple. Deflect conventional budgetary expenditure to a National Infra Annuity Fund. So, instead of spending Rs 1 lakh crore through a plethora of populist programmes and delivered (if at all) through buckets leaking like sieves, it may be a good idea to transfer Rs 1 lakh crore from the Consolidated Fund of India to a National Infra Annuity Fund. Annuity projects can, then, be awarded to the extent that the corpus of the fund can support. And, thus, there is no fear of future un-provided liabilities. Simple arithmetic shows that a Rs 1 lakh crore contribution to the annuity corpus committed every year for the next 10 years can immediately enable concessioning out Rs 4 lakh crore worth of projects today. Look at the bang for the buck, the immediacy of the impact, the ring-fencing of future liabilities and, above all, the mood and order-book upliftment for the private sector. And this is a sure-fire way to impact underdeveloped areas too.
Third: now very clearly somebody has to administer this annuity fund. More importantly, that “somebody” (difficult to find today other than Pulok Chatterjee) has also to galvanise the resurrection of all stuck infra projects — public, or private, and remove policy logjams. That somebody also has to create a pipeline of projects to meet the 12th-Plan targets. So, one of the biggest “policy” expectations from the Budget is that the government will announce an appropriate body to handle the infra sector holistically. The big expectation is that a new infra ministry will be announced to handle the huge set of challenges in a concerted and comprehensive manner. An infra ministry with visionary political leadership, effective powers and live-wire officers can, then, be a structured institutional response to what is clearly now an onerous task dumped on the shoulders of the Principal Secretary in the Prime Minister’s Office.
Fourth: the biggest national embarrassment is our power sector. There is no way the Union Budget can choose not to have a point of view on the matter. There are three clear stands to be taken:
These should lift the long-term mood in this sector because it is inconceivable to have healthy sovereign finances in the absence of a healthy power sector.
Fifth: some housekeeping tasks also need to be effected to clear the clogged pipelines of day-to-day operations. Chief among them is the widely expected announcements regarding the “definition of infra”. Specifics in section 80IA (relating to the 10-year Income Tax holiday) require attention like “greenfield” and “brownfield”, the treatment of mergers and acquisitions and allowable window to choose the 10-year period. There are a few more issues concerning infra special purpose vehicles like applicability of minimum alternate tax, dividend distribution tax and capital gains for unlisted companies.
Sixth: land and environment are two of the biggest concerns for infra developers right now. Even as the issue of “objectivity” in environment matters is still being sorted out, let us focus on the land matter.
It is necessary for the nation to find a long-term, sustainable, equitable and transparent solution to making 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 of crucial transportation, energy, water and other links. This is an essential developmental role of the “sovereign” and has to be undertaken in close cooperation between the Centre and states. It is, therefore, proposed that the government consider setting up a National Land Bank Corporation (NLBC) with an initial capitalisation of Rs 50,000 crore, under an Act of Parliament. As part of the scheme, states are to be encouraged and facilitated to set up their own State Land Bank Corporations in symbiotic relationship with the NLBC.
Seventh: recent public controversies regarding lack of transparency and good governance have reiterated the long-standing demand for fresh legislation to create truly independent regulatory authorities for various infra sectors. Draft legislation, adroitly prepared by the Planning Commission, has for long been awaiting political will. An announcement in the Budget to this effect will greatly enhance brand India.
The challenges are enormous, but solutions also exist!
The author is Chairman of Feedback Infrastructure. These views are personal. vinayak.chatterjee@feedbackinfra.com
