Big ticket action likely for infra push

Last Updated: Tuesday, June 3, 2014 - 17:31

Zee Research Group/Delhi

Having included infrastructure in the 10-point agenda enunciated by the government last week, all eyes are on the likely decisions Prime Minister would initiate in the short to medium term to help make good promises he made to the electorate in the run up to the polls.

The Modi government has got into the act right away but given the complexity and diversity of economic challenges it is likely to adopt gradualism rather than unleash plethora of reforms in one go.

Here are some probable government decisions which can be taken in the next 6 -12 months (short term). In an attempt to send a strong signal to global investors, the finance ministry is expected to liberalise the FDI policy by allowing 49 per cent investment in all sectors, barring a few strategic ones (like the multi-brand retail sector). The latest manifesto also stated, “BJP will encourage private sector participation and investment, including FDI in selected defence industries.”

To kick-start stalled infrastructure projects is also the top priority of the Modi’s government. According to a Barclays report, “We expect the government to fast-track 7 tn rupees worth of stalled projects over the next few quarters, focusing on those facing final clearance delays. Turning around such projects would boost investment sentiment and eventually attract more investment.”

With regards to the Oil & Gas sector, the new government is expected to devise a mechanism on subsidy sharing. Further, the decision related to natural gas price hike is also pending.

Other possible decisions include: a possibility of granting infrastructure tag to low-cost housing segment, expediting the National Highway construction projects (especially Border and Coastal highways), and increasing private sector participation beyond captive coal mining so that coal production can be ramped up.

In contrast there are decisions likely whose impact can be witnessed in the medium to long term horizon (over 12 months). The list of probable decisions here includes: expand the role of the manufacturing sector in the economy (with an emphasis on SMEs); expand and strengthen the national solar mission given Modi’s experience in implementing solar energy policy in Gujarat; fast-track power distribution reforms as Modi is known for turning Gujarat from a power deficit to a surplus state.

The BJP’s 2014 manifesto has also talked about skill development for India’s young population. The government is expected to launch a `National Multi-skill Mission` and would promote vocational training on a massive scale. This would help generate skilled manpower for enhanced manufacturing capability likely in the country.

Moreover, the new government is likely to push for Diamond Quadrilateral in railways and set up a National Optical-Fibre Network up to the village level. The government would also modernize existing and operational airports, and build new ones especially connecting smaller towns and all tourism circuits.

Importantly, the BJP-led NDA government has a proven track record of creating an investor friendly environment. Even in the 2009 manifesto, it was mentioned that if the party comes into power then it would add at least 120 GW of power over the next five years, with 20 per cent of it coming from renewable sources.

Furthermore, it was promised that it would complete implementation of National Highway Development Project (NHDP) by building 15-20 km of new highways every day. The document also stated that Pradhan Mantri Sadak Yojana would be fully implemented in the first three years. In case of housing, to bring down interest rates for housing loans was the priority.

Similarly, the 2004 manifesto of NDA clearly depicts that the saffron party has highlighted a focus on investments and infrastructure. It was mentioned in the manifesto that if the party comes into power then it would launch a new program called the Pradhan Mantri Pradesh Sadak Yojana to improve all the state highways and district roads in the country.

Further, private investment in public transport systems would be encouraged. With regards to Power sector, it was promised to generate additional 50,000 MW of electricity in the next five years. Therefore, it would be a top priority this time as well. A single minister for power, coal, and renewable energy under Piyush Goyal is a welcome intent.

Interestingly, NDA in last innings (during 1999 to 2004) had adopted the Public Private Partnership (PPP) model for executing some development projects. For instance, the PPP model was opted for the ambitious Golden Quadrilateral undertaken by the National Highway Authority of India. Further, the model was replicated in Pradhan Mantri Gram Sadak Yojana and other infrastructure segments (like the Kempegowda International Airport at Bangalore).

Moreover, 2003 power sector reforms and restructuring of SEBs (State Electricity Boards) were other key developments initiated by the previous NDA government.

However, India needs a lot of private investment to improve the current infrastructure scenario. As per the report of McKinsey Global Consulting, “India needs to invest USD 1.2 trillion over 20 years merely to upgrade its urban infrastructure to minimum international standards— an eight-fold increase over projected spending.”

The key challenge here would be to raise funds for the mammoth exercise and with banks balance sheets under pressure infrastructure companies would not find the going easy. But government might look at a set of new infra bonds to put into action the infra mission.




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