Stepping Back

While the first stint of the Modi government between 2014 and 2019 was a period of relentless public spending on infrastructure, Union Budget 2019, which heralded the beginning of its second stint, is a marked departure from the past with firm focus on finding more avenues to get funds for infrastructure projects. There is no surprise here. Less-than-expected GST receipts, higher expenditure on social sector schemes and less benign crude oil prices have restricted the government's ability to spend more.

In its first Budget in 2014, the Modi government had allocated a record Rs 1,91,000 crore for infrastructure, which went up significantly to Rs 5,97,000 crore by 2018/19. The ability to raise more resources has clearly waned. Finance Minister Nirmala Sitharaman referred to this on more than one occasion during her over two-hour long Budget speech even as she mentioned a number of instruments for tapping private sector investment in infrastructure. "It is estimated that railway infrastructure will need an investment of Rs 50 lakh crore between 2018 and 2030. Given that the capital expenditure outlay of railways is Rs 1.5-1.6 lakh crore per annum, completing even the sanctioned projects will take decades," she said. "It is, therefore, proposed to use Public-Private Partnership to unleash faster development and completion of tracks, rolling stock manufacturing and delivery of passenger freight services."

At a broader level, the targets in the Budget are ambitious. The government has said it intends to invest Rs 100 lakh crore over the next five years at an average Rs 20 lakh crore a year. This is far more than what it was able to spend even in its first stint. Aware of the uphill task ahead, it has suggested a number of steps such as the setting up a Credit Guarantee Enhancement Corporation for infrastructure financing and deepening the market for long-term bonds, including corporate bond repos and credit default swaps. Further, the government plans to permit investments by FIIs/FPIs in debt securities issued by Infrastructure Debt Fund-Non-Bank Finance Companies to be transferred/sold to any domestic investor within the lock-in period.

"The Budget rightly gives an impetus to financing infrastructure and recognising the need to build upon our learnings of development finance institutions to fund long-term infrastructure projects," says L. Viswanathan, Partner, Cyril Amarchand Mangaldas. A committee will be set up for this. "Once constituted, the committee could examine the issue of asset liability mismatches faced by banks and financial institutions. The emphasis on deepening the long-term bond market for the infrastructure sector is also welcome. This policy fillip for infrastructure financing will, in turn, buttress highway, infrastructure corridor and power related targets and structural reforms in the Budget."

The other big takeaway was the renewed push for affordable housing by increasing the annual tax exemption on interest paid for self-occupied property with value up to Rs 45 lakh from Rs 2 lakh to Rs 3.5 lakh. This is besides the proposal to make available land from public sector enterprises (PSEs) for construction of affordable homes. Pankaj Kapoor, MD and founder of real estate consultancy Liases Foras, says the increased tax exemption will push sales in the category, which has 6.87 lakh unsold units over 50 cities, accounting for 53 per cent of the total unsold inventory. "This will help clear up inventory and make houses affordable," he says. "This is expected to drive the much-needed urgency in sales and bring fence-sitters back into the market this financial year," says Aashish Agarwal, Senior Director, Valuation and Advisory, Colliers International India.

Cumulatively, this will result in annual savings of nearly Rs 7 lakh for first-time home buyers. This includes Rs 3.5 lakh on interest, Rs 1.5 lakh tax exemption on principal and subsidy under the Prime Minister Awas Yojana (PMAY) where households with annual income of up to Rs 18 lakh can avail of Rs 2.3 lakh upfront subsidy. "Already, GST on affordable homes is only 1 per cent. The measure will be a big driver for the real estate sector," says Kapoor.

Allowing the use of PSE land for housing will also bring down prices. "In the last 14 years, land prices have increased ten times. This increased cost for builders and pushed up prices, making houses unaffordable," says Kapoor. "The use of the government's land parcels for public infrastructure and affordable housing shall narrow the demand-supply gap," says Megha Maan, Senior Associate Director, Research at Colliers International India. "Providing land from PSEs for affordable housing will help solve land acquisition problems and make prices more rational," she adds.

In her speech, Sitharaman said nearly 1.95 crore houses are proposed to be provided to eligible beneficiaries under the PMAY (Grameen) in rural areas. The completion period of houses has come down from 314 days in 2015/16 to 114 days. Since the PMAY (Urban) was launched in June 2015, construction of 46 lakh houses has started, out of which 26 lakh have been completed.

@sumantbanerji