The change

The Budget’s provisions for infrastructure funding are promising. Apart from a huge outlay in investment, the Budget focused on roads, railways, and the bugbear of infrastructure projects — financing. On the financing proposals, the effects are likely to play out over the next year-and-a-half, unlike previous proposals such as infrastructure development funds or infrastructure investment trusts which require far longer time-frames to be implemented. What was also new was the awarding of power projects with all clearances and linkages in place. Plans are to extend such a system to roads, ports, and railways, which will go a long way in shrinking execution timelines and project costs. Tweaking of the PPP model to solve issues of risk taken by the developer is another positive, but there is no clarity on how it will play out and will not help existing projects.

The background

Stalled infrastructure projects have risen rapidly in the past five years; stalled projects went from around 5 per cent as a proportion of projects under implementation in 2010 to 10 per cent now, according to the Economic Survey.

Much of the hold-up in execution was due to delayed clearances and land acquisition, pricey bids placed by developers, and lack of funds at affordable rates to finance execution and working capital. From late 2013 onwards, efforts have been made to clear regulatory snags and streamline processes. Efforts at clearing projects have, however, begun to show some effect.

The verdict

But the problem of heavy debt still looms large. Budget provisions on this front can gradually lighten the load over the coming years.

One, the setting up of the National Investment and Infrastructure Fund will directly infuse capital into infrastructure-lending companies, which can be leveraged and more funds made available.

Two, collections from road cess is set to increase by ₹40,000 crore with a part of the excise duty on petrol and diesel being redirected towards road cess. With the NHAI looking to bid out projects on a contract basis, since PPP projects found few takers, this will help improve project flow. The fiscal so far has seen a close to doubling of NHAI projects that were bid on contract basis. Three, reinstating tax-free bonds will provide additional funds.

Companies that stand to gain are L&T, Sadbhav Engineering, MBL Infrastructures, KNR Construction, IVRCL and NCC.

Related Topics