Boost to infrastructure

Union Budget 2012-13 has a number of measures for supporting investments in infrastructure and resolving some of the constraints. The Prime Minister had earlier talked about $1 trillion investment during the Plan. Effective policy interventions have been outlined by the finance minister in his Budget speech.
An important initiative to promote investment in the sector in the past has been tax-free infrastructure bonds. During past year this limit was set at `30,000 crore; it has now been increased to `60,000 crore. This covers road, rail, power plants, housing and other infrastructure areas.

This would provide an important window for these sectors to raise resources. Specifically, for India Infrastructure Finance Company Limited (IIFCL), it will be an important support structure to expand its resource base. To get funding from IIFCL, credit enhancement for PPP projects has also been permitted. This would help reduce the cost of capital. The finance minister has also permitted the airlines sector to get short-term funds as ECBs (extended commercial borrowing) for working capital requirements. Similar support has been given for the road sector, which has now been permitted to allow ECBs for capital expenditure on the maintenance and operations on toll systems for roads and highways so long as these are part of the original project.
One of the important areas of concern has been the cost of power to the consumers. In view of the inadequate availability of domestic coal and reduced production from the KG-6 Basin, it was essential that availability from imports be encouraged. This is proposed to be done by abolishing customs duty on imported coal, along with the chemical vapour deposition. Simultaneously, the finance minister has also announced abolition of the customs duty on LNG imports. Both these measures will improve the financial viability of the power sector. This is an extremely important measure for improving the discoms viability.
One of the major areas in the Indian infrastructure is rural roads. Over a period of years, more than three lakh kilometres of roads have been constructed. And the programme will further be expanded in the 12th Plan with villages up to 500 population in the plains and 250 in the hills been proposed to be connected. The present increase of 20 per cent will provide support to these measures. This is critical, as rural roads programme has led to an increase in rural incomes by 15 per cent.
The infrastructure investments in the 12th Plan are targetted at `50 lakh crore. This is only feasible if private investment is supported. An important instrument for this has been viability gap funding (VGF). Such a funding is provided to the extent of 20 per cent generally. By extending the scope of this funding to irrigation projects, terminal markets, common infrastructure in agriculture markets, soil testing laboratories and capital investment in fertiliser sector, a strong thrust has been given for private investment. Similar support has been given for oil and gas/LNG storage facilities and oil and gas pipelines, fixed network and towers for telecommunication.
The Budget has kept infrastructure development as a main focus. Approximately, $1 trillion investment can be realised with specific measures for stepping up investments, expanding the ambit through the VGF, expanding the window for getting finances through ECBs and providing tax relief for the fuel to enable it to perform better. How these operationalise during the year needs to be seen.

The writer is a member of the Planning Commission, Government of India

By arrangement with Financial Chronicle

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