Well-developed infrastructure is a fundamental underpinning of any effort to push the economy into a growth orbit. This requirement has assumed a critical dimension for the BJP government’s larger political agenda. Prime Minister Narendra Modi’s ‘Make in India’ pitch has ignited a wave of optimism. Its success, however, hinges largely on dismantling ground-level hurdles. A sense of unease was discernible when Finance Minister Arun Jaitley spoke, while presenting Budget 2015, of inadequate infrastructure and major slippages in projects. “Our infrastructure does not match our growth ambitions,” he admitted. He evidently realises that >stepped-up allocation by itself would not be enough. He has promised to introduce a plug-and-play model for big-ticket infrastructure projects such as power plants, airports and roads. The proposal to revisit the PPP (public private partnership) mode of infrastructure development is welcome and inevitable. Assorted non-economic risks — from political to social — have inhibited investment in this space. The toll model for roads is a case in point: ‘toll-risk’ is proving to be a dampener for the flow of fresh private funds into the sector. The changing dynamics call for a new approach. “The sovereign will have to bear a major part of the risk without, of course, absorbing it entirely,” Mr. Jaitley had said. >Economic Survey 2014-15 also speaks of “disproportionately high levels of default’’ facing the road sector portfolio owing to the economic downturn. The Survey clearly sees a slowdown in appetite for BOT (build operate and transfer) PPP projects as a consequence. The PPP model was the centrepiece of the growth story a decade ago but it has outlived its utility. The proposed Public Contracts (Resolution of Disputes) Bill and the Regulatory Reform Bill will, it is to be hoped, help get stalled projects back on track. The plan for a bankruptcy code must be read in tandem with these two proposals. All these should provide a higher level of comfort to lenders for infrastructure projects.
The Budget has also proposed a National Investment and Infrastructure Fund with an annual inflow of Rs.20,000 crore. This could strengthen the balance sheet of infrastructure finance companies such as the NHB and the IRFC, and help them improve their leveraging power and refinancing capacity. This will have a trigger effect down the line. Simultaneously, Mr. Jaitley has planned tax-free infrastructure bonds for projects in the rail, road and irrigation sectors. The Budget has also proposed five ultra-mega power projects. With the plug-and-play model, one hopes that the winners of the contracts could begin the project implementation process immediately without worrying about regulatory clearances and coal or gas linkages. Mr. Jaitley has pressed the right buttons. Whether these initiatives take off depends on how potential investors respond.
