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Budget 2012: Need A Big Push for the Infra Sector, Says SREI Infra

  • India Inc. eagerly looks forward to Union Budget 2012-13. In a scenario of high inflation, liquidity crunch, high interest rates and subdued business sentiment, the Budget is expected to provide certain policy directions which will shape the course of the economy in the coming months.Infrastructure can be a game-stopper for the economy if capacity addition is not done proactively. India's infrastructure is bursting at its seams. A Big Push on the infrastructure front is very much needed at this point, especially keeping in mind the numerous positive spin-offs infrastructure creation has in terms of generation of employment and revenue. First and foremost, the infrastructure sector companies and SEZ units be exempt from MAT.

  • The USD 30 billion annual cap on External Commercial Borrowing (ECB) may be lifted temporarily so that India Inc. is able to raise more long-term resources from abroad which can be channelized into infrastructure.There are decisions which need to be legislated (e.g. land acquisition) and decisions that are to be implemented by Executive Order (e.g. power sector reforms, urea price decontrol, deregulation of fuel prices, etc.). Government must expedite all steps that can be implemented through Executive Order.

Sectors that deserve immediate attention are:

  • Power: The benefit under Section 80IA will be expiring on 31.03.2012 for the power sector. However, keeping in mind the huge demand-supply mismatch in the power sector, it is imperative for the government to extend the benefits for some more years. Financial health of the State Electricity Board is a major area of worry. Until and unless this is addressed, this can translate into a banking sector crisis. The V. K. Shunglu Committee's recommendation that the RBI should buy all bad SEB loans from the banks needs to be taken very seriously, or else investment in power will suffer greatly. 55% of our power production is coal-based, but despite having abundant coal reserves in the country we need to import 140 million tonne of coal every year. Of the 294 coal blocks in India, 140 are in the no-go zone. To ease coal linkages, government must take a call on the no-go criterion, or else power sector will badly suffer. Also, government must ensure that more and more private players are brought into mining.

  • Roads: The progress on the national & state highways has been satisfactory. The rural roads need focused attention. Improving the transport network of the hinterlands is key to revitalizing the rural economy. Roads create new markets, enable farmers to take their produce to market on time, increase school enrollment and facilitate access to healthcare thus leading to overall improved standard of living in rural areas. Investing in rural roads can unlock huge untapped economic potential. To make rural road projects commercially viable for private sector, Government has to design proper incentives and build those in to the road contracts (e.g. rural road developers be also allowed to build warehousing & storage facilities, cold-chains, etc. which were incentivized in last year's budget ; that would address problems likes demand-supply mismatch and wastage of food materials). Keeping in mind that the quality of rural roads has been unsatisfactory in general and maintenance requires recurring expenditure, government should consider building concrete roads along select rural stretches (especially those with high potential for developing new markets). Although building a concrete road costs 6-7 times more than its asphalt counterpart, concrete roads need minimum maintenance and last for a very long period of time which can help avoid the recurring expenditure. Thus, the initial high investment provides its value's worth.

  • Land acquisition has emerged as a serious challenge both for infrastructure creation and for greenfield industries. In fact it is key to attracting any type of investment - domestic or foreign. While Centre has come out with a Land Acquisition Bill, each state is free to model its own version of the land acquisition bill. Centre should take the lead in reaching out to the States and work together towards identifying tracts of non-agricultural / fallow land (which can be readily used for industrial purpose) and create a national land map of such tracts. Farmers who are willing to offer their land for industrialization can approach state governments so that their lands are also entered into the land-bank database. Based on that 'land bank', industry can purchase land from the state government and also directly negotiate with farmers who are willing to offer land. Building clusters of industries within earmarked zones would be beneficial in the sense that the units would be able to use the common infrastructure. Government can play the role of a facilitator in terms of getting all requisite clearances to expedite industrialization. Connecting each zone to the nearest state or national highway with a cement road and providing a rail link can facilitate attracting investment.

  • To enhance government's revenues, early implementation of Goods & Services Tax (GST) and Direct Tax Code (DTC) is a must. DTC can be launched in 2012, if not fully at least in parts. With services accounting for 57% of India's GDP, more and more services need to be brought under the tax net along with a negative list.

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