Govt spend to lead infrastructure sector, private investment to wait

The huge allocation made to the infrastructure segment was a welcome move but fell short of making any big bang announcements for the sector, according to infrastructure companies and experts.  This year again, government spending is likely to lead the investment cycle as private investment may choose to wait.
 
Finance minister Arun Jaitley in the budget also gave the affordable housing segment much needed relief and granted infrastructure status. The industry had been for long asking for these changes.
 
The total allocation for infrastructure development in 2017-18 stands at Rs. 3,96,135 crores. “This magnitude of investment will spur a huge amount of economic activity across the country and create more job opportunities,” Jaitley said in his budget speech.

 

“The announcements are very good on intent, implementation is key.  The first and major round of investments will come from the government side. Investments would be led by the government; I do not see the private companies will open up their purses,” said R Shankar Raman, chief financial officer, Larsen & Toubro Ltd (L&T). L&T is seen as a proxy to economic activity in the country.
 
MS Unnikrishnan, managing director and CEO at Thermax said the budget lacked any big bang announcements for infrastructure. “Various small announcements for infrastructure, but a big bang announcement is missing which could have helped kickstart the private investment cycle,” Unnikrishnan said.

 
However, affordable housing with its new status may see more immediate private interest. “Granting infrastructure status to affordable housing will provide a boost in volume of construction activity across the country. It was a good boost to the construction industry that was struggling with reduced number of product launches in real estate in the last couple of years,” said Joe Verghese, managing director, Colliers International India.
 
Some infrastructure sectoral concerns also remain unaddressed.  “Happy with the quantum of allocation, with 18% of the total budget being made to infrastructure and to sectors which have shown satisfactory performance. What has not been addressed, are the hot buttons in infrastructure,” said Vinayak Chatterjee, ‎chairman at Feedback Infrastructure Services Pvt Ltd.

 
The budget statement also did not make any mention of the Kelkar Committee recommendations for private-public partnership and issues faced in the thermal power sector several experts pointed out. Raman added the budget missed out addressing the thrust required for “Make in India” initiative.
 
The renewable segment of the power sector saw more impetus given in the budget announcements along with duty reduction in some related equipment manufacturing. “The government’s commitment to rural electrification and solar target is a welcome step. However, strengthening the Renewable Purchase Obligations (RPO) mechanism is essential and should be part of government’s larger vision for renewable energy,” said Anil Sardana, managing director, Tata Power.

 
Reduction in the basic customs duty on Liquified natural gas is also expected to bring down energy costs said Lalit Kumar Gupta managing director and chief executive officer for Essar Oil. The government’s decision to set up an integrated oil major company and create more strategic oil reserves is also seen as further boosting economic activity and creation of huge employment opportunities.
 
A part of the infrastructure announcements is a mechanism to streamline institutional arrangements for resolution of disputes in infrastructure related construction contracts, PPP and public utility contracts through an amendment to the Arbitration and Conciliation Act 1996. The sector experts see the move being partially useful in addressing dispute resolution as a concern. “Not having multiple bodies help, but there needs to be focus on quick and efficient dispute resolution,” Raman from L&T added. 

 
Even as private investments in the infrastructure sector may take longer, the budgets announcements are expected to give the right push for sectors like steel and cement. “Given that steel will be one of the key requirements for these sectors, we expect that domestic demand scenario of steel will improve handsomely,” said PK Singh, chairman, Steel Authority of India (SAIL).