Infrastructure will expand

Budget 2011-12 has several major initiatives for financing infrastructure projects and stepping up investment in this sector. The 13th Finance Commission had, in its report, suggested a path of fiscal consolidation. The Budget proposals of 2011-12 are in conformity with this and fiscal deficit is targeted to go down to 4.6 per cent as against 4.8 per cent indicated previously. Lower deficit will enable availability of funds for the private sector and this will ensure large flow of resources to infrastructure projects, too.

It is estimated that $1 trillion investment will be required in the infrastructure sector during the Twelfth Five Year Plan (2012-17). This is almost double of what the current plan is expected to attain. The finance minister has opened several windows for flow of funds from foreign investors to meet part of the financial resources required for this. The Securities and Exchange Board of India-registered mutual funds have now been allowed to accept subscription from foreign institutional investors; a major thrust has been provided by increasing the foreign institutional investors (FIIs) limit for investment in corporate infrastructure bonds to $25 billion from the existing $5 billion with the total limit of FII in corporate bonds being raised to $40 billion; a further initiative has been permitting tax-free bonds up to `30,000 crores; similarly, National Highways Authority of India (NHAI), Housing Urban Development Corporation (Hudco) and ports have together been allocated `20,000 crores tax-free bonds. Substantial step up in the pace of infrastructure projects can be funded through these initiatives.
Investments in the power sector will be the largest component of infrastructure. The Budget announcement of excise-duty exemption on supplies to mega and ultra-mega power projects will place domestic manufacturing on an equal footing with imports.
It had been decided under the road component of “Bharat Nirman” to connect all villages above the population of 1,000 in the plains and up to 500 in the hills and other areas. Proposal for increase in Rural Infrastructure Development Fund (RIDF) for National Bank for Agriculture and Rural Development (Nabard) from `16,000 crores to `18,000 crores will certainly help. There, is however, a need to enhance this further as the requirements of the rural economy is large.
A major initiative announced by Mr Mukherjee is the creation of special vehicles for getting foreign investment in the form of Notified Infrastructure Debt Funds. To make this attractive, these funds will attract withholding tax rate of five per cent instead of current rate of 20 per cent. This should make these funds attractive for foreign investors as the funds can be invested freely in the infrastructure and their income will be exempted.

B.K. Chaturvedi is a member of the Planning Commission