The crucial role infrastructure development plays in easing supply side constraints to economic growth has been well recognised. In common with all its predecessors, the recent budget accords priority to infrastructure finance for very valid reasons. The requirements are huge: according to the 12th Plan, as much as Rs. 55,00,000 crore is required for investment in infrastructure, with nearly 47 per cent coming from the private sector. Not just the scale but certain special features of infrastructure finance make the task especially daunting. Commercial banks, which seldom accept deposits for longer than three years, run the risk of a balance-sheet mismatch in lending to infrastructure projects, which are of a long duration. In his budget speech, the Finance Minister outlined a few steps that will enhance the quantum of funds available through dedicated institutional arrangements. For instance, a few more infrastructure debt funds, in addition to the four existing ones will be set up. These will provide long-term, low-cost debt through innovative means for infrastructure projects. The India Infrastructure Finance Corporation, in league with the Asian Development Bank, will facilitate access to the bond market for long-term funds. The limit for tax free infrastructure bonds has been increased to Rs.50,000 crore during fiscal 2013-14.Trading in debt instruments through the stock markets has been made easier. A regulatory authority for the road sector to take care of special challenges such as enhanced construction risk has been announced.
In the broader area of reviving investment, the only fiscal measure of note in the budget has been the introduction of an investment allowance of 15 per cent for a period of two years for new, high value investment of a minimum of Rs.100 crore. Welcome as this is, it is doubtful whether one measure alone is sufficient given the nature of the slowdown. According to the Economic Survey, new investments have been drying up across sectors, partly as a consequence of rising stalled projects that reduce the ability of firms to start new ones. Almost 80 per cent of the stalled projects are in key infrastructure areas such as electricity, roads and telecommunications. From a macroeconomic perspective, it is important to step up the investment rate, which had declined to 35 per cent in 2011-12 from 36.8 per cent the previous year. Gross domestic savings have also fallen sharply to just over 30 per cent in 2011-12. The household sector, which contributes the most to domestic savings, must be incentivised further. The budget’s specific proposals, including reviving the Rajiv Gandhi Equity Savings Scheme, and the promise of inflation-linked bonds are hardly inspiring.