Since the NDA Government has come to power, it has maintained its stance to focus on infrastructure development. While movement to asset monetisation is visible, continued visibility on reasonable budgetary allocation to infra (roads, railways, urban infra) will boost awards and execution. As expected, from the NDA Government’s first budget in July, 2014 to the last one presented by the current Finance Minister, there has been a consistent rise in allocation of funds for infrastructure. Just to put the numbers in perspective, allocation to the infrastructure sector has increased to Rs 4.56 trillion in FY2019-20 from Rs 1.80 trillion in FY2014-15.

Increase in allocation was also reflected in expansion of power transmission, railway network and even penetration of telecom and internet in rural areas. However the expenditure tilted a bit towards the highway and roads construction. However, one issue that India Inc faced was – private CAPEX was completely stalled. With not much support coming from the private segment, even public sector spending (which witnessed an increase every year) does not seem sufficient to keep the economy on a faster growth track. No wonder the tag of an infrastructure deficit country has been consistently attached to India. Now, as India is again witnessing macro-economic pressures and demand squeeze – the infrastructure sector holds the key for revival.

It is true that the finance minister Nirmala Sitharaman has already laid down a plan for projects worth Rs 102 lakh crore in National Infrastructure Pipeline (NIP), a lot more is required and expected from Budget 2020-21. Simple reason being, requirement of funds to run the announced projects and any further allocation announced in the upcoming budget.

As a result, the biggest task for the finance minister is to show the roadmap for funding, especially the debt. This requires the Finance Minister to lay down the provisions for the Development Financial Institutions (DFIs) in this Budget itself. In the current scenario where banks are yet to recover from the NPA mess, and after the fall of leading infrastructure financing institutions such as IL&FS, NBFCs have also been staying away from infrastructure funding.

As to speed up the projects, it will require the removal of all bottlenecks from projects. The flagship programmes of the government like Bharatmala, Sagarmala and revamping of railway signals are struggling because of inefficient decision-making, lack of interest from funding agencies, regulatory and judicial reviews.

Critical issues infrastructure players are facing is, due to higher risks, the banks are seeking higher equity participation from players in infra projects. And, unlike the boom time where infrastructure players had access to ample liquidity, they are finding it difficult to arrange for 40 to 50 per cent equity participation. Many of the corporate houses, whose balance-sheets continue to bleed after assets turned NPAs or are listed for resolution at the NCLT (National Company Law Tribunal), will find it difficult to put more equity into projects. It is high time that the NCLT process is speeded up and more cases pending are resolved on priority basis.

Commenting on his expectations from the Budget, Vaibhav Thakur, Partner, OM Power Projects, says “The announcements of higher allocations from the government without addressing the core issues like lack of larger private sector participation (that has declined significantly), land acquisition issues, contract enforcement, environmental clearances and availability of funding will – it will be just a farce”.

Industry expectations
•    Infrastructure players are expecting that the government should implement a plan like PRAGATI (Pro-Active Governance and Timely Implementation), which was effectively used during Modi’s first term.
•    Given this backdrop, infrastructure players expect some announcements on the BOT model as well as private participation in Railway projects.
•    It will be interesting to see whether NHAI will get higher budgetary support from the government or will it still be called to rely on external and intra budgetary resources.
•    Clarity on the split between budgetary and IEBR sources for funding is expected.
•    Industry players are also expecting release of Arbitration Claims.The highways ministry has more than 300 ongoing arbitration cases with a claim amount of around Rs 800 billion.
•    Reintroduce more deductions for infrastructure bonds.

More deductions should be made available under infrastructure bonds. When in 2010, the government was facing issues of raising funds for infrastructure, the UPA Government had introduced section 80CCF in the Income Tax Act-1961 with effect from April 2011. As per this, the section deduction from income would be available to individuals for investing in notified long-term infrastructure bonds up to a sum of Rs 20,000. This deduction under section 80CCF of the Act was over and above the aggregate limit of deduction allowed under sections 80C, 80CC, and 80CCD of the Act. This came as a positive move as it gave new avenues to save tax to individual tax payers and provide a much required funding to the infrastructure sector investment.

Industry players feel that in the backdrop of the current scenario, it is an opportune time for the finance minister to reconsider and bring back the deduction for investment in infrastructure bonds under the overall ceiling of section 80C of the Act. Or at least introduce some new Act so that the deductions are available and stands benefited for both investors and infrastructure players.