Infra to exclude telephony, power

Finance ministry draws up list, to put it up to panel of secretaries for discussion after seeking Cabinet approval.

Telephony and power generation will no more be counted as infrastructure with the Union government set to notify 25 sectors as infrastructure, setting right a policy anomaly that gave incentives to the core sector but never defined it. These sectors will be eligible for tax incentives, viability gap funding and will be covered by regulatory framework for the infrastructure sector, including levy of user charges.

Banking regulator Reserve Bank of India (RBI) and financial institutions would in normal course follow the notified definition but in the course of respecting prudential norms can make exceptions, said a senior government official.

“These institutions will come out with a notification explaining why certain sectors are being taken out of the list of priority lending for infrastructure. They will largely go by the government definition and will not include sectors that are out of the notified list,” he said.

Real estate, one of the most sensitive sectors when comes to lending, has been kept out of the definition along with cement. Among sectors that expected to benefit are roads, telecommunication towers, education, hospital, power transmission lines, petroleum and natural gas pipelines, cold storage and modern post-harvest storage facility.

The sectors have been selected on the basis of six well-defined criteria, including levy of user charges for being eligible for incentives meant for infrastructure sector.

With user charges being one of the conditions, the government has tried to make a distinction between public service and infrastructure, said the official who did not want to be named. The distinction is required since operators of infrastructure facilities recover their costs through levy of charges on users unlike public utility where cost is recoverable through revenue accruing out of taxation.

Another important requirement that went into the selection of sectors was the non-tradability of a good or service. “Only those sectors are eligible where the end product cannot be traded or sold. For instance, power transmission line is non-tradable but power carried by it is tradable,” explained the official.

Among other conditions is existence of natural monopoly where one company is capable of meeting the demand for a good or service at a price lower than others. This situation though could change for certain sectors with technological innovations like it has happened in the case of telecom industry.

Infrastructure sectors have also been chosen on the grounds of high sunk costs that make investment irreversible. This also creates a problem of loss for the investing company in case it wants to exit the facility it had created.

Through availability of viability gap funding and easier norms for accessing cheaper funds through external commercial borrowings, infrastructure providers can benefit from being in the notified list.

The ministry of finance has also drawn up the list based on whether there is “non-rivalry in consumption” implying benefit of public good can be extended to more consumers without any huge additional cost usually up to a certain capacity.

The identified infrastructure sectors also create value around them. For instance, coming up of a road could enhance the value of real estate in that area or creation of storage facility can improve provision of food through less wastage.

Officials said the list would now be put up for discussion to a committee of secretaries and would be notified after the approval of Cabinet Committee on Infrastructure.