Booster dose for transport but no new idea for infrastructure

I SMOOTH SAILING On Dec 31, the govt had unveiled an NIP worth ~1.03 trillion, listing 6,500 projects across sectors

After the announcement of a National Infrastructure Pipeline (NIP), the industry’s expectations for cues from the Union Budget were only partially realised, with no policy announcements or new ideas for the infra sector.

“The capital outlay for roads, railways and metro rail projects have been budgeted to increase (only) marginally over the revised estimated for 2019-20,” said Shubham Jain, group vice-president at ratings agency ICRA. “Though there has been some increase in the allocation for roads and railways, the increase in the overall capital outlay is significantly lower when compared to the requirement under NIP.”

The finance minister, however, announced ~1.7 trillion support for the transportation sector alone. Besides setting up a facility to generate young talent — engineers, management graduates, economists and others.

To promote investment in the sector, tax exemption to sovereign wealth funds, including the wholly owned subsidiary of Abu Dhabi Investment Authority, on income from interest, dividend and capital gains has been proposed, subject to some conditions. The minister added ~100 trillion would be invested in infrastructure over the next five years. On December 31, the government had unveiled an NIP worth ~1.03 trillion, listing around 6,500 projects across sectors. These new projects include housing, safe drinking water, access to clean and affordable energy, health care for all, world-class educational institutes, railway stations, airports, bus terminals, metro rail and other railway transportation, logistics and warehousing, and irrigation projects.

“About ~22,000 crore has already been provided as support to the Infrastructure Pipeline,” the minister stated. This amount is in the form of equity support for India Infrastructure Finance Company and a subsidiary of the National Investment and Infrastructure Fund .

These institutions would leverage it, as permissible, to create a financing pipeline of over ~1 trillion, it is hoped. This would create a major source of long-term debt for projects, a long-awaited requirement.

A good part of the borrowing for financial year 2020-21 would go towards capital expenditure of the government that has been scaled up by 21 per cent, she said. “The project preparation facility is a good initiative. Additionally, Krishi UDAAN and Kisan Rail can help plug gaps from farm to market for agri produce,” said Manish

Sharma, partner at consultants PWC India.

Despite mixed performance of the government’s regional connectivity push in aviation, the finance minister announced 100 new airports would be built by 2023. She also increased allocation for the scheme by ~15 crore.

This was announced alongside an indication of government help to increase the fleet size for Indian carriers. “This is in line with the commitment to promote domestic travel and include those areas which haven’t been connected so far. This is part of the national infrastructure plan,” she said. “The announcement for 100 new airports under UDAAN (regional air connectivity scheme) is a very positive move that will further strengthen an already successful scheme,” said Ajay Singh, chairman and managing director, Spicejet. The airline has been the biggest beneficiary of UDAAN, successfully bagging and launching the highest number of routes. However, the success of implementation depends on the availability of finance. Most of the heavy lifting for construction of new airports has to be done by Airports Authority of India (AAI).

“Achievement of the overall NIP target would be critically dependent on effective involvement of private sector and leveraging additional resources. Administrative ministries and departments will have a major role to play in ensuring adequate returns to the proposed infrastructure investments,” said Peeyush Naidu, partner at Deloitte India. The importance of active participation from the private sector is demonstrated by the mixed performance of UDAAN. Almost three years after its launch, the scheme faces structural problems, with many small airlines still waiting to actually start operations on the designated routes.

The government has also cancelled licences of airlines in the past – instances are Air Deccan and Air Odisha — for poor performance.

Underlying problems include the dearth of infrastructural support for small airlines, which are not faring well in comparison to heavyweights such as Spicejet and Indigo. The government also faces the quandary of lack of bidders on many zeroed-in routes.

The Chairman of AAI, Arvind Singh, said the agency planned to invest ~25,000 crore for building new airports and upgrading of unused airstrips. A large part of the outlay would come from external borrowing of AAI, primarily through fund raising via bonds. “Our balance sheet is very healthy, with AAA ratings, and we have approval to raise more than ~2,000 crore this year,” he said.