The BT Budget MM Special : Debates; Infra: Rebuilt!..No, Collapse!

It may help the public sector infrastructure companies, but Budget:2000 does nothing to stimulate foreign investment, writes IDFC's N. Munjee...

Budget 2000 has proposed fresh initiatives in rural infrastructure, water-treatment, waste-management, and road and power. While the budgetary support for the rural infrastructure has been enhanced, infrastructure status has been conferred on water-treatment and solid waste management. Fiscal concessions in respect of Sections 54 E(A) and 54 E(B) have been confined to the bonds issued by NABARD and the National Highways Authority of India (NHAI). This will help the NHAI in mobilising resources for the National Highway Development Project (NHDP), which, inter alia, entails the multi-laning of the Golden Quadrilateral.

Then, the Plan outlay for PSUs in the power sector has been increased from Rs 7,626 crore to Rs 9,194 crore. For commissioning priority projects by the State Electricity Boards (SEBs), a provision of Rs 300 crore has been made for subsidising the interest on loans these entities have taken from the Power Finance Corporation. In order to undertake investments on the renovation and modernisation of old and inefficient power plants, and for strengthening the distribution system, a new scheme of providing assistance to state utilities will be introduced. Under this scheme, additional Central Plan assistance of Rs 1,000 crore will be provided to the states. And to assist the SEBs to clear their overdues to the Central power- and coal-utilities, a scheme of securitisation of their dues, first suggested in Budget 99, has been finalised.

However, apart from facilitating the effective functioning of various public sector power undertakings, the budget does not even address the key issues required to stimulate private sector investment in infrastructure. To generate a growth-rate of 7-plus per cent, it is essential that infrastructural bottlenecks are overcome, and this can only occur if greater participation of the private sector in infrastructure-development is encouraged. According to the Expert Group on the Commercialisation of Infrastructure Projects, India needs to invest $115-$130 billion (Rs 5,01,400-5,66,800 crore) in infrastructure from 1996-2001, and $215 billion (Rs 9,37,400 crore) in 2001-06. The capacity of the term-lending institutions to fund requirements of this magnitude is constrained by the size of their balance-sheets. Further, their product-profile does not match the requirements of infrastructure projects, which have different risk-profiles and payback periods. For the kind of investment-flows envisaged to be possible, the following are imperative:

Clearly, Budget 2000 does not provide any stimuli to private sector investment in infrastructure. One, it does not provide for risk-capital provisions that can kick-start activity in this area. Two, it does not provide a comprehensive roadmap. As the constraints in each infrastructure area are inherently different, a comprehensive roadmap in respect of policy, operational, and administrative issues for each needed to be delineated, addressing key issues in respect of the partnerships between the public and the private sector, and the associated contractual arrangements between the two. The greatest bottleneck is an uncertain policy framework for private capital investments. Clarity of approach, through a policy, fiscal, and legal framework that has well-defined objectives, will go a long way in stimulating investment in the infrastructure sector.

One of the key ingredients for the future of a dual platform-a public and private sector backbone-for the delivery of effective infrastructure services to the consumer will be a well-defined strategy for the transition as well as a coherent and explicit interface mechanism between the two. To get this right will require hard contractual arrangements between different public sector entities. This is the crucial point. Unless we get the public sector right, the transition to a dual public-private platform will be so much more difficult.

NASSER MUNJEE is Managing Director, Infrastructure Development Finance Company

..No, Collapse!
..And Feedback's V. Chatterjee draws up a Budget:2000 Infrastructure Sector Satisfaction Scorecard that records a score of only -9,600!

By Vinayak Chatterjee

As an observer of developments in the infrastructure sector, I had set out a wish-list a few weeks before February 29, 2000. My wish-list also records my perception of the importance of the item for galvanising the sector. I have also included the items announced in the budget which weren't envisaged by me. Post-budget, I have recorded a simple dissatisfaction / satisfaction index from -100 to +100.This is the outcome of my exercise:

EXPECTATIONS FROM THE BUDGET	Weight	Budget Pronouncement	Dis/ Satisfaction	Score*
1. Recognition that the silent crisis in infrastructure is more serious than the BOP crisis in 1991. An adequate response: Budget 2000 must set up a National Infrastructure Development Board (NIDB), more powerful and target-oriented than the FIPB.	90	Mount sustained assault on bottlenecks in power, roads, ports, telecom, railways, and airways.	-90	-8,100
2. Measures to attract private capital must be at the level of the states, whose finances are in shambles. Since financial closures will depend on the enhanced credibility of the states' financial systems, Budget 2000 should implement strong measures of fiscal discipline at the state level.	80	"It will be my endeavour to take further measures in the next year for promoting fiscal reform in the states."	-50	-4,000
3. Much of the basic improvements in civic amenities-and the expected private investments-will be at the Urban Local Body (ULB) level. So, Budget 2000 must ease the flow of capital by removing the lending-restrictions by banks, co-operatives etc. on ULBs.	30	Tax exemption on water-treatment and solid waste-mgmt. Extension of broad tax-exemption of municipal bonds.	+50	+1,500
4. Private capital can come only if the pricing of public goods starts moving towards market-driven recoveries. Budget 2000 should outline the co-ordinated steps to be taken in a given time-frame to come to grips with this vexed issue through a carrot-and-stick policy to states and ULBs.	70	Corporatisation of telecom, ports , and airport service providers.	-20	-1,400
5. Budget 2000 must propose a financial format so that independent regulatory authorities are truly independent. Also, the Budget must spell out its policies to attract private capital by announcing new ''independent'' regulatory authorities in civil aviation, roads, ports, and urban water supply.	60	Emphasis on expenditure-management.	-50	-3,000
6. Since we need to quickly demonstrate action on the ground, Budget 2000 could announce an implementation schedule for a few, large, nationally-important demonstration projects. Such mega-scale implementation with budgetary support will prove to be a real confidence-booster.	60	More resources for the Rs 54,000-crore NHDP, and more support for Tehri and Naphtha Jhakri projects.	-50	-3,000
7. Budget 2000 should broaden the definition of infrastructure under Section 80 (1) (a) of the Income Tax Act to cover many more forms like solid waste management, new township development, parking and transportation terminals, and the related social infrastructure.	50	Two additional sectors added for tax-exemption: water treatment and solid waste management.	+30	+1,500
8. Finally, a clear perspective on the future of dedicated funds must be provided by Budget 2000 so as to allay the misgivings that have arisen on account of the so-called Dedicated Road Fund that has, by all accounts, been gobbled up by the Consolidated Fund of India.	20	No Clarity.	-70	-1,400
9.1 Various Customs duty cuts on telecom-related equipment.	50	Good for the sector.	+70	+3,500
9.2 Include investments in public companies providing long-term finance for urban infrastructure as approved investments for charitable trusts.	20	Will encourage private capital in urban infrastructure.	+90	+1,800
9.3 Deletion of provisions 54EA and 54EB, making them available only to bonds issued by NABARD and NHAI.	40	Negative on private capital flowing into infrastructure projects.	-80	-3,200
9.4(i) Provision of Rs 300 crore for subsidising the interest on loans from the Power Finance Corporation.	30	(i)&(ii) Money from one pocket of the Govt to another.	-20	-600
9.4(ii) Scheme for the securitisation of the dues owed by the State Electricity Boards to Central utilities to assist them in clearing their dues.	20	In the right direction; but heavy" leakages" in implementation.	+40	+800
9.5 Rural Infrastructure Development Fund corpus increased by Rs 1,000 crore.
9.6 Enhanced equity support to HUDCO and measures to focus on rural housing.	40	Good move.	+60	+2,400
9.7 A sum of Rs 2,500 crore earmarked under the Pradhan Mantri Gramodaya Yojana for launching a programme of constructing rural roads.	60	Great idea for rural connectivity, but leakage concern remains.	+60	+3,600
TOTAL				-9,600

So, has the infrastructure sector received a boost from Budget 2000? As is evident from the sigma of the weighted scores, No!

Vinayak Chatterjee is Chairman, Feedback Ventures