Union Budget 2015: Sincere attempt towards a faster infrastructure rollout

The Budget is heavily focused on infrastructure and will have a very significant multiplier effect on the economy. A direct allocation of Rs 70,000 crore more than last year has been made on infrastructure.

There is an additional funding of Rs 40,000 for infrastructure by repurposing existing duty on petrol and diesel to the extent of Rs 4. It also increases outlay on roads and the gross budgetary support to the railways by Rs14,031 crore and Rs 10,050 crore, respectively.

The Budget has large infrastructure rollout commitments, including 1 lakh km of road, irrigation infrastructure, housing for all and national fibre optic rollout.

The Budget also provides thrust on housing and related manufacturing sectors such as steel and cement which have been struggling for the last few years

To facilitate the rollout of this infrastructure vision, significant funding and strong financial institutions are required. India has for sometime had very limited operation of  development banks.

The existing development banks such as IDBI, IFCI, ICICI have either ceased to operate in the area or have negligible operations. In this context, it is important to have a development bank to support the infrastructure roll out in the country.

So it is welcome to note that the budget proposes to set up a National Investment and Infrastructure Fund which will get Rs 20,000 crore equity from the government.

The Budget also proposes tax-free infrastructure bonds for projects in the rail, road and irrigation sectors.

The Budget also aims to rationalise the capital gains regime for the sponsors exiting at the time of listing of units of Real Estate Investment Trusts (REITs) and Infrastructure Investments Trusts (InvITs), subject to payment of Securities Transaction Tax (STT). It also proposes a pass through for rental income of REITs from the assets owned by them. This makes REIT's more attractive and hence may become a viable instrument to raise funds required for infrastructure.

The budget further enhances the avenues for making funding available for infrastructure by allowing tax 'pass through' for Alternative Investment Funds for infrastructure, so that funds per se are not taxed. In addition, the budget speech notes that PPP has not worked well in India. It suggested a higher sovereign risk in PPP to make the framework workable.
These measures will help significantly in providing the funding required for the proposed infrastructure.

From an energy infrastructure perspective, while five new UMPPs (Ultra Mega Power Projects) and enhanced target for renewable energy capacity have been announced, this may not be sufficient to address the power requirements of the manufacturing sector.
The budget also lays out a number of initiatives for improving ease of doing business which would in turn contribute to a faster rollout of infrastructure.

The budget interesting also proposes Rs 150 crores for an innovation centre housed in Niti Aayog, where young minds can innovate and contribute to large scale infrastructure projects in the country.

It is definitely a budget which has made a sincere attempt towards an accelerated rollout of infrastructure.

(The author is Partner, Infrastructure and Government Services at KPMG in India. The views are personal )