Infrastructure is a vital growth enabler
Aug 03 2014
Several decisive steps taken in the budget like industrial corridor development, 8,500 km road construction, 16 new ports, and broadened financing base, among others, aim to not only accelerate the pace of infrastructure growth, but also restore investor’s confidence in the sector. Industrial corridors are likely to be the primary drivers of India’s growth in manufacturing and urbanisation. This budget provides a framework for development of the corridors which will act as catalysts of rapid industrialisation once trunk infrastructure is constructed. This, coupled with allowing 49 per cent foreign direct investment (FDI) in the defence sector, allowances for investments above Rs 25 crore and other such incentives provided in the budget shall definitely provide a fillip to the manufacturing sector.
The setting up of a National Industrial Corridor Authority to coordinate the development of the industrial corridors will bring in uniformity in the development of industrial corridors. It is expected that master plan for the Amritsar-Kolkata corridor will be completed expeditiously as also the perspective plans for the Bengaluru-Mumbai and Vizag-Chennai corridors. These corridors together with the Delhi Mumbai Industrial Corridor (DMIC) are expected to be important drivers of GDP growth over the medium to long term primarily driven by growth of the manufacturing sector.
The budget also announced a host of measures to resolve the hurdles being faced by the power industry such as promising assured coal linkage to the power projects which have achieved commissioning or are scheduled to achieve commissioning by March 31, 2015, and rationalisation of coal linkages, among others. The equal focus has been on improving efficiency by introducing requirement of crushed and washed coal and by allotting Rs 100 crore for preparatory work for ultra modern super critical technology.
The government has also set aside Rs 500 crore towards development of large size ultra mega solar projects at Rajasthan, Tamil Nadu, Ladakh and Gujarat and incentivised local solar equipment manufacturers by rationalising customs duty on import of raw materials and excise duty on domestic manufacturing of solar panels and wind turbines.
Further, launch of Deen Dayal Upadhyay gram jyoti yojana, with an initial corpus of Rs 500 crore that aims to augment power supply for improving rural life, is a right step towards achieving the dream of 24x7 power at an affordable rate to all Indians in the next five years. While highway sector was a success story for the previous NDA government, the recent performance and poor implementation records of highway contracts started symbolising implementation challenges in the country. The budget has brought the focus back to the beleaguered sector by setting aside Rs 387 billion for investment in National Highways Authority of India (NHAI) and state government while targeting 8,500 km of road construction in the current financial year.
Further, the government plans to award 16 new port projects this year and announce comprehensive policy to promote Indian ship building industry. The development of airports in tier-I and tier-II cities is also important to broaden the connectivity with smaller cities.
Investing in sustainable development of our urban centres will play a crucial role in achieving accelerated economic development. The budget laid down the vision of developing ‘100 smart cities’ as satellite towns of larger cities and by modernising the existing mid-sized cities. The government has set aside Rs 7,060 crore in the current fiscal for this critical activity. It has also relaxed FDI conditions for development within smart cities by allowing development of built-up area of 20,000 square metres, with a three year post completion lock-in.
The government also plans to have three new smart cities in the Chennai-Bengaluru industrial corridor region, viz., Ponneri in Tamil Nadu, Krishnapatnam in Andhra Pradesh and Tumkur in Karnataka.
On the basis of the success of these initiatives, we expect more cities to be gradually made ‘smart cities’ and can see greater fund allocations in future union budgets. No other area requires better centre-state-local government coordination than urban development. A mix of good governance and capacity building at all levels of the government is essential to make urban centres pillars of job creation, comfort and security.
Large scale PPP projects generally have concession tenors in excess of 20-25 years and up to 99 years in some cases. While these projects are inherently financially viable, arranging debt funding of a commensurate tenor for these projects has always been a challenge for Indian financial industry. The proposal to permit banks to raise long-term funds for lending to infrastructure sector, with incentives related to CRR, SLR and PSL, is a positive step for such projects.
Proposed infrastructure investment funds for securing infrastructure projects (on line of REITs) will be an innovative product and has potential to reduce pressure on banking sector for meeting infrastructure financing requirements. Enhancement of FDI cap across various sectors is another bold step in the direction of making available additional funds for driving economic growth. Material development is expected in corporate bonds market and the financial sector will be keen to work with regulators towards developing a deep and liquid corporate bond market.
(The writer is president of Assocham as well as CEO and MD of Yes Bank)