The union budget 2018 presented on February 1, 2018 by  the Finance Minister, Mr. Arun Jaitley has been welcomed as a constructive and reassuring budget reflecting, government’s focused vision for boosting agricultural and rural economy and the infrastructure spending through the public exchequer, while encouraging greater involvement of private sector participants.  It was current Government’s last full year budget ahead of the general elections to be held in 2019.  Various bold reforms undertaken in the diverse sectors through this budget, has disseminated the clear signals that Government’s inclusiveness policy will pave a way for the sustainable development of the Indian economy as a whole. This gets substantiated as the Government’s focus has not only been on ‘Ease of doing business’ but the announcement to build 10 million houses by 2019 in rural areas under the mission ‘Housing for all by 2022’ has shown Government’s focus on ‘Ease of living’ as well.

The government has made an all-time high allocation to infrastructure sector. The estimated budgetary and extra-budgetary expenditure on infrastructure has been increased to Rs 5.97 lakh crore for fiscal year 2018-19, this will certainly contribute to economic growth, connect and integrate the nation with a network of roads, airports, railways, ports and inland waterways.

India’s infrastructure financing requirement has been estimated as approximately Rs 50 lakh crore in the next five years, and given the government’s focus on social sector spendings such as healthcare, rural economy and agriculture, it’s necessary to explore alternative means of financing and attract private investment for funding infrastructure projects. India’s roads, power and urban infrastructure are primarily financed through banks, but due to its high exposure the infrastructure sector faces severe credit constraints. Nevertheless, the union budget has done a great job in recognizing the need for alternative means of infrastructure finance.

The union budget has proposed that the corporate sector should raise at least one-fourth of their funding requirement through bonds, while reducing the regulatory minimum investment grade to ‘A’ from ‘AA’. This would eventually make the corporate bond market more deep, wide, liquid and vibrant in the country. The market regulator, SEBI is expected to consider a mandate beginning with large corporates to meet about one-fourth of their financing needs from the bond market, while the Reserve Bank of India (RBI) has issued guidelines to nudge corporates access bond market. The bank recapitalization program of Rs 80,000 crore will further pave way for public sector banks to lend additional credit of Rs 5 lakh crore, these initiatives will support the infrastructure sector in a large way, that’s grappling for additional funds.

Infrastructure Building for Tomorrow’s India

  • The ambitious Bharatmala Pariyojana with an estimated cost of Rs 5.35 lakh crore has been approved, this will boost the existing road and highways. In another encouraging move the railways’ capital expenditure for the fiscal year 2018-19 has been pegged at Rs 1.48 lakh crore, these initiatives will create job opportunities and facilitate the generation of employment.
  • In line with the government’s objective to provide housing for all by 2022, the union budget proposed to set up an affordable housing fund under the National Housing Bank (NHB) boosting supply of rural housing and the augmenting supply of affordable housing in urban areas. The government further said that 3.7 million homes will be built in urban areas in 2018-19, and 5.1 million homes in rural areas.
  • The government has proposed over 50 percent increase in allocation for smart cities in the Union budget to Rs 6,169 crore for 2018-2019, while 99 smart cities have been selected with an outlay of Rs 2.04 lakh crore. Nevertheless, an encouraging situation may only emerge when there are more projects executed on ground and cities.
  • In a move that will help reduce dependence on diesel pumps to irrigate crops, the budget proposed to offer incentives to farmers to shift to solar power pumps. The surplus electricity generated by the farmers will be bought by state electricity distribution companies (discoms). This will certainly boost India’s emerging green economy.

The government and market regulators have taken necessary measures for development of monetizing vehicles like Infrastructure Investment Trust (InvITs) and Real Estate Investment Trust (REITs) in India. Nevertheless, India will require around $4.5 trillion in the next 25 years for infrastructure development, of which, it will only be able to garner about $3.9 trillion, according to the Economic Survey. The infrastructure investment gap can only be filled through financing from private investment, institutions dedicated to infrastructure financing like National Infrastructure Investment Bank (NIIB) and also global institutions like Asian Infrastructure Investment Bank (AIIB) and New Development Bank (erstwhile BRICS Bank).

India to realize its infrastructure dreams, the government must revisit public–private partnership (PPP) models and re-instate confidence into the private sector, which’s lagging at this point of time. The private participation in infrastructure sector is not comforting because of numerous challenges and blockages including land acquisition and environmental issues, moreover, the absence of bankable infrastructure projects has been another disappointment factor for private infrastructure players. The center needs to develop a rational pricing system, a better regulatory mechanism, strengthen dispute resolution mechanisms, and reform financial markets, so that infrastructure projects become economically feasible for the private sector.

The infrastructure sector has always received special attention and an increase in budgetary allocations in every budget, since the government had come to power in 2014. The center has always displayed consistency and coherence on infrastructure policies. It is very heartening that the Prime Minister personally reviews the targets and achievements in infrastructure sectors on a regular basis. And, by using an online monitoring system of PRAGATI alone, projects worth 9.46 lakh crore have been facilitated and fast tracked. Nevertheless, an enhanced budgetary allocation, institutional mechanism for impartial pricing and competition, and vibrant financial markets is required for achieving India’s long-term growth potential.

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