To achieve 9% economic growth, India needs to spend Rs 55 lakh cr ($1 trillion) on infrastructure development. This estimate in the Twelfth Five Year Plan is nearly double of the Eleventh Five Year Plan. The Finance Minister in his speech stressed that the key to restart the growth engine is to attract more investment, both from domestic investors and foreign investors.
INCLUSIVE INFRASTRUCTURE PARTICIPATION
The private sector is an important participant in the India growth story. And the government expects to meet its ambitious infrastructure investment target by including the private sector. Share of private investors in infrastructure investment is pegged at 47% in the 12th Five Year Plan vs. 38% in the 11th Five Year Plan and 22% in the 10th plan.
But this also means that more than half of the resources required for infrastructure development will have to come from the government. And for this kind of investment, the government needs to bring the fiscal deficit in control and manage expenditure effectively.
For sustainable growth, we need an elevated level of investment in infrastructure. The government also needs to address the investment climate and the factors affecting various sectors for funding in infrastructure to pick up.
BUDGET 2013: INFRASTRUCTURE PUSH
Infrastructure Debt Funds (IDF): Budget 2013 aims to encourage Infrastructure debt funds. The funds will raise resources and, through take-out finance, credit enhancement and other innovative means, provide long-term low-cost debt for infrastructure projects. 4 IDFs have been registered with SEBI and of which 2 were launched in February 2013.
Easier Access to Long Term Funds: The Finance Minister in Budget 2013 announced that India Infrastructure Finance Corporation Ltd (IIFCL), & Asian Development Bank, will offer credit enhancement to infrastructure companies to access the bond market to tap long term funds. Infrastructure projects typically have a long gestation period.
Tax Free Bonds: Government to allow issue of tax free bonds to raise funds up to Rs 50,000cr. Issue of bonds will be based on need and capacity to raise money.
Road Construction: Road Construction in India is currently facing financial stress, enhanced construction risk and contract management issues. To sort the issues, Budget 2013 has decided to constitute a regulatory authority for the road sector. The Budget also seeks to remove bottlenecks that are stalling road projects. 3,000 km of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh will be awarded in the first six months of 2013-14. “A Look East” policy proposes to build roads in the North Eastern States and connect them to Myanmar
Industrial Corridors: Under the Delhi Mumbai Industrial Corridor (DMIC) plans for seven new cities have been finalized. Work on two new industrial cities at Dholera in Gujarat and Shendra Bidkin in Maharashtra will start during 2013-14. The Finance Minister promised that the Budget 2013-14 would cater to any additional funds that DMIC could require.
Ports: Budget 2013-14 has proposed to set up two new major ports at Sagar in West Bengal and in Andhra Pradesh. These two ports will add 100 million tonnes of capacity. A new outer harbour will be developed in the VOC Port at Thoothukkudi, Tamil Nadu through PPP at an estimated cost of `7,500 crore. This will add 42 million tonnes of capacity.
Oil and Gas: The Finance Minister in Budget announced his intention to review the Oil and Gas exploration policy to move from profit sharing to revenue sharing contracts. The government also seeks to encourage shale gas and may announce a policy to encourage exploration and production of shale gas. The much talked about natural gas pricing policy will be reviewed this year and uncertainties regarding pricing will be removed. The Budget also seeks to clear NELP blocks that were awarded but are stalled.
Coal: Despite abundant coal reserves, India continues to import coal. In April-December 2012, Coal imports crossed 100 million tonnes and are expected to rise to 185 million tonnes in 2016-17. India is a net importer of coal in order to meet the existing needs of power plants. To reduce dependence on imported coal, the Budget is looking to set up a PPP (Public Private Participation) policy led by Coal India. Private participation is the urgent need of the hour to increase the production of coal for supply to power producers and other consumers.
Power: India already faces an energy deficit with overall energy deficit at about 8.6% and peak shortage of power at 9%. Additionally, DISCOMS (Electricity distribution companies) are making losses. The government has approved a scheme for the financial restructuring of DISCOMS to revive the power sector.
Rural Development : In an effort to push development in the rural sector, the corpus for Rural Infrastructure Development Fund (RIDF) will be raised to Rs 20000 cr. The Rural Infrastructure Development Fund is operated by NABARD.
Source : Franklin Tempelton