The Union Budget 2017
is expected to give an impetus to infrastructure sector in order to boost industrial growthamid global slowdown and lower corporate spending at home.
A Business Standard report said Finance Minister Arun Jaitley might announce a third straight year of record capital spending, which could be 12-14% higher than the 2016-17 Budget Estimates of Rs 2.47 lakh crore. That would put the 2017-18 capital expenditure at nearly Rs 2.8 lakh crore.
From more avenues to fund stuck projects, tax holidays to discount in lending rates, below are five things that Sandeep Upadhyay, Managing Director & CEO, Centrum Infrastructure Advisory expect from the Budget 2017:
1) Given the reluctance of banks to fund infrastructure projects due to increasing non-performing assets (NPAs) in the sector it is imperative that we should have more number of specialised infrastructure financing institutions which as of now is just confined to entities like IIFCL, IREDA, PFC and REC etc. These specialised financing institutions could serve as the much needed complimentary sources of funding infrastructure projects needing long-term funding at subsidised rate.
2) While there had been some traction in the M&A activity for operational assets there has been limited success around resolving the financing issues for the stuck infrastructure projects requiring last mile funding. I expect the Finance Ministry to come out with a dedicated corpus to fund the stuck projects either in the form of a special situations fund or carve a portion out of dedicated funds like National Investment and Infrastructure Fund (NIIF) to immediately fund such infrastructure projects. Once such stuck assets get operational, it will also lead to a gradual but definitive easing of NPAs of the banks. I see this segment as a low-hanging fruit for the government to be addressed on an urgent basis, which could also improve there conversion rates in sectors such as roads and highways where steep targets have been already haunting the Ministry.
3) Minimum Alternate Tax (MAT) is working out to be quite regressive for infrastructure projects specifically at the early stages of projects post commissioning. This is due to the inherent challenge faced by infrastructure projects typically characterised with a gradual ramp-up of revenues. I expect the MAT rate to either reduce or the FM Jaitley considering a lesser alternate form of tax for long gestation infrastructure projects.
4) The overall corpus of allocation for infrastructure projects should definitely be beefed up at a rate significantly higher than what we have seen over the couple of years or so specifically for urban infrastructure, roads and railways sector. Given the shift of execution framework for greenfield infrastructure projects towards models like Engineering, Procurement, Construction (EPC) and Hybrid Annuity Model (HAM), the corpus of funding required for capital expenditure on the government’s balance sheet certainly needs dedicated conduits catalysed by a robust single window clearance policy of rolling out commercially viable projects.
5) The source of financing infrastructure projects needs to be subsidised vis-a-vis funding other sectors. As such longer tenor loans at a discount of at least 2-2.5% below PSU Bank’s lending rate would be a much needed and welcome move. While in a way it has been initiated through conduits such as IDF and InvITs but unfortunately as of now these products have met with only limited success and need to be pushed further by the government. Click here