‘Consistency in policies can ensure growth’

Long-term financing is one of the key factors for expanding infrastructure sector

July 10, 2014 05:53 am | Updated November 16, 2021 10:22 pm IST - NEW DELHI

The Economic Survey has called for maintaining consistency in the government’s infrastructure policies to support economic growth.

The other pre-requisites to drag the infrastructure out of the cycle of delays and slow growth are stepping up investment, improving governance and removing procedural bottlenecks.

While consistency in policies is the main normative vision, the Survey has taken a hard look at one of the key factors for expanding the infrastructure sector — long-term financing.

Bank financing The Survey has sought to address the issue against the backdrop of reluctance by banks to finance many such projects. At the same time, it cannot be denied that banks are the main source of funding but are unable to provide long-term credit due to asset-liability mismatch.

Any move to introduce floating rates to address the mismatch leads to higher project cost due to rate fluctuations. Banks have the additional burden of having to make up for the absence of a corporate bond market and the absence of products for hedging foreign exchange risks. To correct this situation, the Survey has called for a transparent trading process, uniform stamp duty, credit enhancement mechanism and an integrated trading and settlement mechanism.

The Survey has also flagged an upcoming international situation that could impact India’s quest for overseas funds. Withdrawal of the stimulus package by the economies in the developed world, especially the U.S., will lead to tight monetary and financial conditions. For this, India will have to take the lead in approaching multilateral development banks and multilateral financial institutions for meeting the funding requirements of the infrastructure sector in these tough conditions. “The objective should be to devise mechanisms that can ensure flow of funds, especially if investments from conventional sources are inadequate for meeting the requirements of the infrastructure sector.”

Roads The ills of the road sector were laid out in great detail by the Ministry of Highways and Surface Transport through a White Paper released a few days before the Survey was tabled in Parliament. The Survey has largely endorsed the White Paper and suggested easing of exit conditions to enable promoters sell equity positions after construction as also pass on all the benefits and responsibilities to the new owner. Promoters can then use the equity for fresh projects. The challenges facing lending institutions should also be kept in view, especially while designing new financing products to avoid undue burden on the developer.

The Survey has taken a look at international practices and suggested that the government examine concepts such as ‘traffic trigger’ and ‘re-equilibrium discount.’ Under traffic trigger, after a certain volume has been raised, the concessionaire must increase capacity to ensure a minimum level of service to road-users. Under re-equilibrium, users get discounts if performance parameters are breached.

Telecom The Survey has concentrated on trading and sharing of spectrum in order to reduce the cost of radio-waves. The government has already approved spectrum trading and sharing but the Department of Telecom is yet to announce the guidelines.

The Survey felt better spectrum management could lead to a liberal merger and acquisition policy as also examine separation of telecom networking from services. The existing guidelines for mergers and acquisitions have led to just one deal — Airtel and Loop Mobile. It has also sought assistance for developing local manufacturing, research and entrepreneurship.

The Survey had a word of praise for the sector since it attracted $1.3 billion in investments during the previous fiscal. The comparable figure was just $304 million in the previous fiscal. “A series of reform measures by the government, innovations in wireless technology and active participation by the private sector played an important role in the growth of the telecom sector in the country,” it said.

Coal The Survey has called for allowing private sector into coal mining and restructuring of Coal India Limited to eliminate imports which cost nearly Rs.1,00,000 crore last fiscal. Imports are likely to increase because the gap between demand and supply has been increasing consistently. The Survey also made a strong case for removing pricing distortions due to administered pricing. “These fixed prices are dulling the market response and reducing the flexibility of the market economy,” it noted.

It has suggested accelerating coal production in the short-term by building critical feeder route for coal, clearing pending environment and forest clearances, permitting commercial coal mining by the private sector and restructuring state-owned Coal India. It also mentioned the need to expedite the passage of a Bill to amend the Coal Mines (Nationalisation) Act that has been pending in the Rajya Sabha for over a decade.

Energy The Survey has suggested market-linked pricing to boost domestic oil and gas exploration, and production. “In the field of natural resources where there is global trading, appropriate incentives for exploration and extraction in India are obtained when there is pricing parity with the world price excluding transport costs or taxes,” it said.

“If firms obtain a lower revenue per unit of mineral extracted in India, there will be under-investment in exploration and extraction,” it said. It may be recalled that the Cabinet Committee on Economic Affairs had last month deferred a decision on implementing the Rangarajan formula for pricing of all domestic natural gas that was approved and notified by the previous UPA regime.

Civil aviation The Survey detected signs of revival in growth in the civil aviation sector with the possibility of entry of new players such as AirAsia and Tata-SIA Airline. The recovery is nascent because domestic passenger traffic at Indian airports has grown only by 5.2 per cent in the last fiscal.

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