Policy spring and green shoots

A slew of policy initiatives may be breathing life back into the infrastructure sector

The winter of 2012-13 in Delhi was the severest in the last 72 years. For the infrastructure sector, it was the second-harsh "winter of discontent" since the slowdown hit hard from autumn 2011 onwards. But spring is in the air now, with clear blue skies over Raisina Hill, and infra players and watchers are desperately trying to spot green shoots, if any.

And they will, may be. Charlie Chaplin said, "You'll never find a rainbow if you're looking down." So, we are looking up - at North Block and South Block.

Initially, there was the glinting, sharp sword of the proposed National Investment Board - all set to cut through the policy-clearance Gordian knot. But the sword ultimately brandished was the much blunter Cabinet Committee on Investment. Still, infra captains expect this blunter sword to poke the clearance issue hard, if not slice through it.

The Railway Budget surprised with its sobriety. An improvement in operating ratio, linking freight charges to fuel rates, focus on relevant big-ticket projects, and improving coal-mine connectivity - all of these conveying the message that a degree of seriousness had returned. For the private sector, a stated and well-intentioned shift to public-private-partnership (PPP) formats, including for terminal operations and last-leg connectivity, struck the right chords. (BUDGET OUTLAYS FOR INFRASTRUCTURE UNDER PLAN ALLOCATION)

February also heralded thought and action on three new regulators - rail tariff, coal and road - demonstrating a valiant attempt by the "sarkar" to come to grips with contentious issues relating to political interference, unresponsive bureaucracies and level-playing fields.

The Economic Survey pressed seven buttons for urgent government attention:

One, solving coal linkage and fuel supply agreement issues;

Two, improving competition and efficiency in the coal sector, "... which may entail structural reforms" (read de-nationalisation);

Three, easing exit route for the roads sector promoters;

Four, ensuring transparency in natural resources;

Five, rationalising the tax regime on aviation turbine fuel (which is in the range of 20 to 30 per cent in most states) and a transparent pricing regime;

Six, implementing the financial restructuring package for distribution companies (discoms);

Seven, providing clarity on the New Exploration Licensing Policy (NELP).

 

Of the above, the coal, roads and discom issues are certainly being addressed by the government. The rest, hopefully, are on the short-term agenda.

And now the Budget.

As can be seen from the two tables, and as Bidisha Ganguly, head of economic research at the Confederation of Indian Industry, points out, the outlays and relative allocations follow an established pattern. Gazing at these numeric tea leaves does not leave anyone any wiser. Moreover, the 12th Plan annual requirement is Rs 11.26 lakh crore. The 2012-13 Budget, with an outlay of Rs 1.54 lakh crore addresses only 14 per cent of the requirement.

Clearly, the real signals are in policy announcements. Here are the initiatives that seek to provide a fillip:

• Infra financing: Mostly work-in-progress, but emphasis in the Budget speech is reassuring. They relate to (i) select institutions being allowed to raise tax-free bonds up to Rs 50,000 crore; (ii) further encouragement to infra debt funds with four already in place; (iii) India Infrastructure Finance Company Ltd together with the Asian Development Bank to offer credit guarantee, thereby helping to raise ratings on bonds, and thus, giving access to a wider investor base, and bringing down interest rates.
   
• Coal: The policy framework to encourage PPP in coal mining, and blending and "pooled pricing" of imported coal; clearing confusion on import duties on steam versus bituminous coal.
   
• Industrial corridors: A push to dedicated freight corridors and two new industrial cities under the Delhi-Mumbai Industrial Corridor for Mumbai-Bangalore and Bangalore-Chennai corridors.
   
• Ports: Additional 142 million tonnes cargo-handling capacity through two major ports at Sagar, West Bengal and Ramayapatnam, Andhra Pradesh, and an outer harbour at Thoothukudi, Tamil Nadu.
   
• Wind energy: Generation-based incentive.
   
• Power: 16,000 Mw projects set to benefit from one-year tax-holiday extension under Section 80-IA.
   
• Roads: Allocation has risen 30 per cent, including for rural road development; encouragement of road connectivity in the northeast region. Around 3,000 km under engineering, procurement and construction shortly.
   
• Urban: The highest increase in allocation (103 per cent) has been to the Jawaharlal Nehru National Urban Renewal Mission; 10,000 buses to be bought for hill states; Rs 2,000 crore for the urban housing fund.
   
• Rural: The corpus of rural infrastructure development fund raised to Rs 20,000 crore.
   
• Waterways: Plans to integrate waterways, roads and ports will create a new project pipeline.
   
• 15 per cent investment allowance: This will benefit infra capital goods and equipment manufacturers.
   
• Warehouses and cold storages: Rs 5,000 crore to National Bank for Agriculture and Rural Development for this purpose is substantial, and will also spur PPP in agri-storage.
   
• Transmission: Rs 1,840 crore power transmission line between Srinagar and Leh.
   
• Oil and gas: Regime set to move from profit-sharing to revenue-sharing. Policy to encourage exploration and production of shale gas. Review of natural gas pricing. Five million tonnes per annum Dabhol LNG terminal fully operational in 2013-14. NELP blocks that were awarded, but are stalled, will be cleared.
   
• Renewables: Low-cost financing from Indian Renewable Energy Development Agency; and schemes for waste-to-energy.

Do all these, and the finance minister's confidence-inspiring speeches at international financial hot spots, add up to the infrastructure tree springing green shoots as winter turns to summer? Hopefully, yes. And we are still talking shoots; not fruit or flowers.

To quote Winston Churchill: "For myself, I am an optimist - it does not seem to be much use to be anything else."

The author is the Chairman of Feedback Infrastructure

"vinayak.chatterjee@feedbackinfra.com"; Twitter: '@Infra_VinayakCh'