Sandeep Upadhyay, Managing Director and CEO, Centrum Infrastructure Advisory Limited

BEFORE
Budget should focus on higher funds allocation to infrastructure and improving domestic macroeconomic fundamentals
The priority of the Budget should be to improve the macroeconomic fundamentals of the country and make efforts to meet the fiscal deficit targets of last year. The onus should be on productive utilisation of funds. The upcoming Budget should also focus on higher allocation of funds to infrastructure and refrain from undertaking populist expenditures. Efforts should be expedited to kick-start the investment cycle in the infrastructure sector which will not only help to generate employment in the economy, but also help get stalled infra projects off the ground.

Public sector entities need to increase their spending activity which has been reduced significantly by private sector enterprises. Cognisance should be taken of the fact that tampering with indirect tax reforms like the Goods and Services Tax (GST) would not prove to be productive. The government should continue with reduction in corporate tax and in the post-demonetisation phase, measures should be undertaken to reduce individual income tax. Efforts also need to be initiated to raise the country´s tax-to-GDP ratio, which presently is the lowest among its emerging market peers.

This can be achieved by lowering cash holdings in the economy and initiating the right changes in the tax administration structure.

For long, agricultural income has remained outside the purview of the tax system. It is high time that farmers earning more than Rs 10 lakh per annum are brought into the tax bracket. Tax exemption should continue for small and marginal farmers. There should be no taxation change on equities.

In the post-demonetisation period, the government needs to accelerate the push on digitisation and ensure that a larger chunk of the population is brought within the digital framework. It needs to be noted here that India is largely a cash-intensive economy and if the digital transaction model is to be implemented successfully on a large scale, cash transactions would have to be majorly dis-incentivised.

There is an urgent need to chart out a clearly defined public sector bank capitalisation roadmap for public sector banks. Banks should be encouraged to raise equity from the market, and if a majority of the banks are successful in doing so, the government must initiate steps to reduce its stakes in PSBs below the 51 per cent threshold. The government should continue the process of strategic sale of equity stakes in PSUs. This measure should be expedited in course of time which will help the government shore its coffers in addition to bridging the fiscal deficit. The sale should be undertaken taking into account market opportunities and aiming to get the best possible deal for the stake.

AFTER
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. 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 stuck projects either in the form of a special situations fund or carve a portion out of dedicated funds like the 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 their conversion rates in sectors such as roads and highways where steep targets have been already haunting the Ministry.

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 FM Jaitley considering a lesser alternate form of tax for long gestation infrastructure projects. 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 past 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.

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 per cent below the PSU bank 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, unfortunately as of now, these products have met with only limited success and need to be pushed further by the government.

The attempt to catalyse the economic growth through core sectors like infrastructure and defence was evident in the FM´s speech. Within the infrastructure sector, the focus continues to be on pushing capital expenditure in the transportation sector with major impetus on railways.

Addition of low cost housing within the gamut of infrastructure sector was much anticipated and is a welcome move. However, one was expecting the much needed reduction in MAT rate which seems to have been sidelined with minor iteration on which details are further awaited.

Given the steep target the NDA government has set for itself in the roads sector and considering subdued interest evinced from private players to take up financing risk for greenfield projects, I was expecting a significant increase in the budgetary allocation. This was missing to some extent, suggesting that perhaps the government still continues to believe that a large corpus of development funding could be accessed through alternate funding channels like Infrastructure Investment Trusts (InvIT), foreign sovereign & pension funds and new project rollout frameworks including Toll Operate Transfer (TOT), etc.

To complement the moderate increase in the budgetary allocation, it also seems there is increasing dependence on some of the development bodies like NHAI and institutional financing agencies like PFC, IREDA etc., to raise funds through the bonds and public market route which have been relatively slow to respond so far.

While the progress on PMGSY and target set for rural electrification is commendable, unlike the previous two budgets during the current NDA regime, there were no announcements of blockbuster projects. However, the pace of rolling out the infrastructure projects including the need of single window clearance and implementing reforms in the PPP framework and dispute resolution with the contractors is where the authorities really need to focus to accelerate growth in the infrastructure sector.