Budget could push for private investments in public infrastructure

Budget could also announce favourable terms for companies accessing bond markets

The Union Budget may bring a number of provisions to boost private sector participation in infrastructure projects. These could include strengthening the public-private partnership (PPP) dispute resolution mechanism, uniform PPP institutional framework, easier terms for infrastructure companies accessing bond markets, and tax sops, Business Standard has learnt.

Investment in infrastructure projects with high multiplier effect has been the Centre’s main plank to revive the economy, create employment and boost consumption. This will be so in 2022-23 as well.

As reported earlier, the Centre’s capital expenditure in the coming year could exceed Rs 6.5 trillion against the 2021-22 Budget estimate of Rs 5.54 trillion. While the Centre will take the lead through increased public investment, it would also want the private sector to boost capital expenditure (capex) and capacity.

“Private sector participation has been picking up but more needs to come in. The government, on its part, will continue creating a conducive environment for companies to invest,” said a top official aware of deliberations among Budget-makers. Finance minister Nirmala Sitharaman will present the Budget on February 1.

Another official said the government is considering amending PPP terms in favour of the private sector in order to accelerate investment in railways and civil aviation.

“There have been discussions around proper safeguards for private players in case they wish to exit or terminate a contract. However, at the same time, contracts should be legally enforceable, when private participants enter into an agreement with federal or state agencies, to honour their obligations,” the second official said. The official added that the NITI Aayog has also brought this up in pre-Budget talks with the ministry of finance.

After the government announced its Rs 6-trillion National Monetisation Pipeline (NMP), experts called for standard guidelines to engage with investors at both the central and state levels. Once states come up with their own assets for monetisation, global investors would be cautious before bidding for the assets due to different practices in different states.

The NMP involves the government leasing out assets, from airports, roads, and ports to commercial buildings, factories and housing complexes to private firms. This model would be a PPP one.

At the central level, government departments and public sector undertakings (PSUs) have adopted sector-specific model concession agreements to create a streamlined process. At the state-level, only a few states have created institutional frameworks to aid PPP.

Only Andhra Pradesh, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Madhya Pradesh, Rajasthan, and Odisha have legal frameworks for private investment in public infrastructure. The Budget could announce a uniform model framework that states will be encouraged to follow.

There could also be announcements related to easier terms as companies increasingly tap the bond market to raise funds for infrastructure projects. These could come with tax sops. The foundation of the Centre’s infra push is the Rs 111-trillion National Infrastructure Pipeline. For 2020-2025, about 22 per cent or Rs 24 trillion of investment is expected to come in from the private sector.

Even as India Inc’s balance sheet has improved, three waves of the Covid-19 pandemic and their impact on economic activity have affected the appetite for new investment as well.

Recent data by the Centre for Monitoring Indian Economy (CMIE) shows that private and state-owned companies announced capex plans worth Rs 2.1 trillion in the October-December quarter, down around 7 per cent from the July-September quarter. According to the CMIE’s latest project tracker, as of January 17, there are about 5,723 stuck projects, with 2,248 of them being in the manufacturing sector.